The Singapore Economic Review

The global financial crisis of 2008 challenges some relevant aspects of macroeconomic theory such as the neutrality of money. This paper shows that this neutrality is based on the unrealistic assumption of perfect competition. Relaxing this alone (without time lags, price rigidities, menu costs and other frictions) makes money no longer necessarily neutral and hence makes financial crises and institutions much more important. The presence of increasing returns to scale at the firm level and to specialization at the economy level due to the division of labor also makes finance much more important than suggested by traditional economics.

This study empirically investigates the impact of import protection on female labor using a panel dataset of 211 countries. Our findings suggest that import protection increases female labor participation rate in capital abundant countries, whereas decreases in labor abundant ones. This result is also in line with the stylized view that female labor benefits from labor intensive production which requires less formal training and lower job skills.

This paper seeks to explain the lagging productivity in Singapore's manufacturing noted in the statements of the Economic Strategies Committee (ESC) Report 2010. Two methods are employed: the Malmquist productivity to measure total factor productivity (TFP) change and Simar and Wilson's (2007) bootstrapped truncated regression approach which first derives bias-corrected efficiency estimates before being regressed against explanatory variables to help quantify sources of inefficiencies. The findings reveal that growth in TFP was attributed to efficiency change with no technical progress. Sources of efficiency were attributed to quality of worker and flexible work arrangements while the use of foreign workers lowered efficiency.

This paper focuses on competition between an incumbent and an entrant when only the entrant's quality is unknown to consumers. The incumbent knows the entrant's quality. The entrant's quality is assumed to be exogenously determined by nature, or endogenously chosen by the entrant itself. The exogenous model reveals the entrant's high price can signal its high quality, but entry deterrence occurs for the high quality entrant. Interestingly, the incumbent being informed of the entrant's quality generates an additional separating equilibrium in which the incumbent charges a higher price when the entrant's quality is relatively low, and a lower price when the entrant's quality is relatively high. Surprisingly, entry is facilitated. On the contrary to the exogenous model, the endogenous model result shows that entry deterrence still occurs for the high quality entrant with the incumbent being informed of the entrant's quality. However, in both settings, we find that the incumbent could not take advantage of its inside information of the entrant's quality.

This paper estimates the trade costs from international relative prices, and studies the economic determinants of implied trade costs. We find that the magnitude of trade costs depends on the characteristics of both the type of good and set of locations under examination. In particular, it is found that higher non-traded input share and trade barriers, and lower tradability of goods lead to a larger trade cost, as does a lower proximity of geographic distance between locations.

One-way compatibility is a phenomenon often observed in reality and Windows OS versus Mac OS is a good example. A vertical differentiation model is presented herein to analyze system firms' compatibility choices. This paper differs from the existing literature in two aspects: (1) The purebred and hybrid systems are vertically differentiated; (2) Since one-way compatibility is a phenomenon often observed in real life, this paper considers compatibility as being unilateral rather than bilateral and the possibility of one-way compatibility. We find that, depending on the quality of the hybrid system, any state of compatibility could be an equilibrium outcome. When the quality of a hybrid system is very small, both firms adopt compatibility. Second, despite the fact that firms always earn higher profit under full compatibility than they do under incompatibility, the equilibrium outcome is incompatibility when the quality of a hybrid system is very high, which means firms face a prisoners' dilemma under this situation. Finally, since a firm favors incompatibility more when its rivals adopt compatibility than when its rival adopts incompatibility, the equilibrium outcome is one-way compatibility when the quality of a hybrid system is intermediate. From this point of view, this paper provides a theoretical interpretation of one-way compatibility between Windows OS versus Mac OS. We also show that the market outcome is socially inefficient when the hybrid system's quality is relatively high.

It is widely acknowledged that the export-oriented garment and textile industries have been playing important role on the overall economic development in developing countries. However, the performance of the developing countries in exporting garment and textiles is in fact, highly heterogeneous. While some of the developing countries such as, China, Vietnam and Bangladesh have been highly successful in exporting highly labor-intensive garment and textiles products, not all of the developing countries have been equally successful in doing so. Using cross-country panel data, an attempt has been made in this paper to ascertain the importance of infrastructure and business environment in explaining the heterogeneous performance in exporting garment and textiles by the developing countries. The paper empirically demonstrates that in addition to the availability of cheap labor, the availability of basic infrastructure, and a business friendly environment significantly affect the export of labor-intensive garment and textiles by the developing countries. The paper, thus, suggests to invest on infrastructure, and to develop a business friendly environment in developing countries to strongly link the growth potentials of labor-intensive products and economic growth.

This paper briefly reviews six decades of Malaysia's economic development strategy, which may be described as bounded industrial policy that favors export-led growth. The objective of the current Tenth Malaysia Plan (2011–2015) is to achieve high-income status by 2020 by promoting high-value-added production through increased investments in human capital, adopting new technologies, promoting entrepreneurship to drive innovation and creativity, and elevating domestic demand as an engine of economic growth. Principal components analysis (PCA) and medoid partitioning applied to inflation-adjusted industrial production suggests that Malaysia satisfies the necessary, although not necessarily the sufficient, conditions to achieve this goal.

The untested assumption of linear relationship between stocks and bonds in previous empirical studies may lead to an invalid conclusion if the actual relationship is non-linear. The emphasis of this paper is on the effect of non-linearities on causal relationships between stocks and bonds in the cases of Malaysia and Singapore. Results from linearity tests indicate the existence of non-linearities in the dynamic relationship between stocks and bonds. Non-linear causality test results based on Taylor expansion suggest that non-linear causality flows from stocks to bonds and vice versa. The test further confirms that bonds with different maturity dates have different relationships with stocks.

Malaysian employees' public pension plan was studied to analyze pension expenditure due to salary risk and demographic risk. By integrating risk management and System Dynamics (SD) approach, the risk factors involved were identified, a causal loop diagram was constructed, and the SD model was developed. By using a sample of actual data, the proposed model was then validated through behavior validity test and a risk analysis was conducted. Then, risk monitoring was performed through policy evaluation in which the impact of different policy scenarios on pension expenditure was analyzed. Risk management and dynamics simulation approach in analyzing pension expenditure were shown to be useful in evaluating the impact of changes and policy decisions on risk.