The Singapore Economic Review

This paper studies the effects of US quantitative easing (QE) on Asia by examining capital flows and financial markets. After the global financial crisis (GFC), Asian economies with more open and developed capital markets experienced greater swings in capital inflows. In particular, large capital flows manifest more in portfolio investment and other investment such as bank loans than in foreign direct investment. Empirical analysis shows QE, QE1 in particular, significantly contributed to the rebounding of capital inflows to the region after the onset of the crisis by lowering domestic yield rates as well as CDS premiums. Although the currency value responses differed across countries, it appears that economies with stable exchange rates roughly coincide with those in which house prices have been rising, suggesting that monetary easing of advanced countries have affected Asian countries through either appreciation of currency values or increases in the prices of housing.

This paper documents and analyzes the rise of emerging East Asian economies as major international investors. Foreign direct investment (FDI) from these economies is rising faster than their economic growth, trade and inward FDI, and the region is by far the most important investor from the developing world. We develop an analytical interpretation of the behavior and competitive strategies of major developing East Asian outward investors. We conclude that the drivers of this outward FDI (OFDI) are generally consistent with the international investment literature. But in addition, particular factors are at work, including the desire for natural resource security, and exceptionally high domestic savings rates. The major challenge for the rest of the world is to accommodate these FDI flows, as part of the global reorientation of economic activity toward East Asia.

There has recently been much discussion on the relevance of the open economy trilemma in the context of deepening financial integration of countries across the world (see for instance, Rey (2013) and Devereux and Yetman (2014)). The open economy trilemma is an important issue for the countries in Asia not least because their financial systems are small and exchange rate stability is crucial to their economic growth. This paper investigates whether the economies in Asia are still bound by the "impossible trinity" by examining the interest rate transmission from the US to the region before and after the onset of the global financial crisis. We make a distinction between long-run versus short-run transmission of interest rates by conducting the Peseran bounds test of cointegration and Wald test of joint significance respectively on autoregressive distributed lag models estimated with data from nine Asian economies. The findings on the strength of interest rate pass-through are related to each country's trilemma configuration. Overall, our empirical results provide some supporting evidence that the Asian economies are still constrained by the open economy trilemma.

This paper attempts to test whether there is econometric evidence in support of the efficiency wage theory in Singapore's manufacturing sector. Two of the possible ways to account for efficiency wages are to show that higher wages have resulted in reduced shirking by workers, and to show that higher wages have resulted in an increase in worker productivity. We find evidence in support of efficiency wages for three out of 18 industries within the manufacturing sector in Singapore based on both ordinary least square (OLS) and 2SLS regression results, and for another two industries based only on OLS and yet another two industries based only on 2SLS.

Since its formation in 1972 under the leadership of its founding chairman, Professor Lim Chong Yah, the NWC has been a major force in ensuring the stability of the labor market. A key recommendation which the NWC pushed for as a means of saving jobs in the recessions has been the reduction of the cost of labor to employers. The underlying assumption was that the reaction of demand to reduced labor costs would be large enough to justify such an approach. The main aim of this paper is to derive estimates of the elasticity of demand for labor using a suitable time-series econometric approach. The estimates imply that the elasticity of demand for labor in Singapore is less than but close to being unitary in magnitude.

The paper reviews the economic growth and development experience of Malaysia since her early independence years against the major economic policy initiatives that she has undertaken over the years. It then tries to link those policy initiatives to the various economic growth theories. Subsequently, it dwells upon the various challenges faced by Malaysia to join the ranks of high income nations.

This paper examines Singapore's fiscal position and its unique way of financing targeted welfare programs. We examine how reserves are accumulated through fiscal discipline during times of phenomenal economic growth in Singapore and when Singapore was enjoying demographic dividend. The existence of the large accumulated reserves has resulted in particular features of the Singapore's budgetary process, such as fiscal rules, which govern the utilization of revenues from the reserves. Innovative budget implementation, such as Block Budgeting, has helped Singapore to ensure fiscal sustainability. The accumulation of reserves throughout its economic history has afforded Singapore a unique way to fund social protection through special transfers and funds, without having to raise taxes.

The Singapore housing market is unusual in its high homeownership rate, the dominance of HDB housing, and the extensive intervention of the government in regulating housing supply and demand in both the HDB and private housing sectors. Recent rapid population increases in a low interest rate and high global liquidity environment has resulted in accelerated house prices increases in Singapore. Earlier this year, the government launched "Our Singapore Conversation" of which discussion on housing policies constitutes one major component. This "conversation" comes in the wake of several consecutive rounds of measures to stabilize housing prices using various instruments. This paper evaluates the main policy changes proposed and makes recommendations for housing market reforms: (i) the government need to clarify goals of housing policies and make available more detailed data on the foreign component of our population for better analysis of housing markets; (ii) the housing supply regime should target an overall effective vacancy rate that encompasses both the Housing and Development Board (HDB) and private sector; (iii) policy makers need to monitor carefully excess demand indicators for housing in addition to housing affordability indicators over the entire spectrum of incomes and household types; (iv) housing REITs should be established to provide an alternative investment option as well as to develop an efficient and affordable rental sector; and (v) in addition to macroprudential measures, owner-occupancy requirements and fiscal measures such as stamp duties and property taxes could be further utilized to reduce the foreign demand for Singapore housing and real estate.

This paper first provides a brief review of the global financial tsunami. It then explains why the quantitative easing in the US and the unique characteristics of the Asian property markets have contributed to the formation of property bubbles in some Asian economies. Thereafter, it discusses the possibility of a bursting of property bubbles in Hong Kong, Singapore or another Asian economy a few years from now, and highlights that the bursting of the property bubble in that economy could trigger severe corrections of property prices in this region through the contagion effect. After pointing out that the implied crisis could be more severe than that during the Asian Financial Crisis, it (i) discusses policies that could mitigate the damages of the potential crisis and (ii) draws important lessons and conclusions that could pre-empt similar disasters in the future.

The study aims at finding the energy intensity and the sources of the changes of the energy intensity of the steel and steel products industry in Thailand using the firm level data collected from the surveys and interviews of steel firms in 2005 and 2012. The study finds that the energy intensity of the industry during the decade of domestic and global economic turbulent time in the 2000s fluctuated. The intensity declined immediately after recovering from the 1997 financial and currency crises but moved in an inverted U-shaped curve when the industry went through the various changes of production structure during 2003 to 2010. The decomposition analysis based on the logarithmic mean Divisia index method finds that the source of the changes of the energy intensity of the industry was dominated by the structural change effect. The fluctuation of the energy intensity was found despite a persistent decline, albeit relatively small, in the energy intensity of individual subsectors. This calls for the need to strengthen the effect of subsector energy intensity changes to help reduce the energy intensity of the industry in the long term. The study results imply four policy measures the government should use to induce steel firms to reduce their energy intensity and thus use the energy in the most efficient way.

Most economic concepts such as the market, competition, flexibility, pricing of production factors and consumption theory no longer reflect the reality of the contemporary situation. The current economic model and political system form a synthesis of fiduciary economics and privilege political systems. The exponential rise in material wealth amassed over the industrial age is unsustainable when figuring in the availability of resources. Even more interesting is how it may run counter to human instincts, our gene structure, and how the mindset and behavioral pattern are forged. As the economy and society evolves, combining in-depth knowledge across various disciplines is crucial to furthering our understanding of the world.