The Singapore Economic Review

This study explores Chinese realities of industrial policy. These facts attract global interest. They also caused China’s Debate of the Century between prominent Chinese economists, Justin Lin and Weiying Zhang. After commenting on this exchange with evidential assessments, three questions are explored for technology-followers: (A) Can industrial policy against market failure also minimize government failure? (B) Can catching-up create win–win outcome by complementarity, rather than substitution? (C) Can leapfrogging trigger global innovation by co-evolution? TSMC from Taiwan suggests affirmative answers for all these three. Although its game-theory basis appears challenging for replication, exceptions may prove rules for further studies.

This paper examines the dynamic relationship between the consumer price index (CPI) and the producer price index (PPI) in the UK, France and Germany from 1997 to 2013. We employ the momentum-threshold autoregressive (MTAR) cointegration model for empirical analysis. The results show that the CPI and the PPI are cointegrated with bi-directional long-run Granger causality between CPI and PPI, signifying the existence of both demand-pull and the cost-push nature of inflation. The estimates of threshold vector error correction models (TVECMs) indicate asymmetric adjustments to equilibrium, where upward adjustments are statistically significant but downward adjustments are sluggish and insignificant. Moreover, we generate the unconditional half-life estimates as a measure of persistence, which reveal robust evidence of complex non-linearities in the adjustment process. Our overall results provide valuable information for policymakers to formulate inflation-control policies and optimal policy horizons under a non-linear framework.

Are there early warnings of an impending financial crisis in China? Our analysis using the Kaminsky–Lizondo–Reinhart (KLR) signal approach reveals that the probability of China having a currency crisis in the 24 months to October 2017 could be increased assuming no remedial action by the authorities to avert an impending crisis. Notwithstanding the above, our analysis shows that nine out of 15 economic indicators are effective in predicting a currency crisis. Loss function of policymakers and evaluation of usefulness are then employed to verify their validity. The results show that bank deposits and M2/international reserves are the most powerful indicators.

As the most influential regulation in 2016, China launched circuit breakers in the financial markets. However, the circuit breaker mechanism was implemented for only four days and then suspended. Many criticisms then stated that circuit breakers impeded trading behavior in Chinese financial markets. This study explores this short-life circuit breaker mechanism in China, and examines whether circuit breakers impede trading behavior in Chinese financial markets as many criticisms stated. We use an intraday dataset and investigate the circuit breakers. Contrary to those criticisms, we find that circuit breakers are not easily reachable and have no “magnet effect” between two thresholds of breakers. We also find that without protection of circuit breakers, potential large market fluctuations will have negative impacts on individual stocks’ liquidity and value. As the major contribution, our study indicates that Chinese financial markets still need a circuit breaker mechanism to protect investors’ benefits and maintain the market liquidity and stability.

Using data from a nationwide donation program and a follow-up survey, this paper examines how geographic distance between donors and recipients and the capability to give measured by donors’ income affect the amount of charitable giving (conditioned on having given). We find that an increase in geographic distance significantly reduces donation amounts for 15% of the donors. The sensitivity of donation to distance decreases with total monthly disposable income for 62% of the donors. We further find that donation amounts increase with donors’ income for 4% of the donors when evaluating at the mean or median distance.

This paper investigates the long-run and short-run impacts of government spending on inflation in three Asian emerging economies of India, China and Indonesia by applying the cointegration and Vector Error Correction Model to time series data from 1970 to 2010. The results confirm a cointegrating causal link between government spending and inflation in the long run in these countries, regardless of their institutional governance differences. In the short run, government spending (as a percentage of GDP) appears to have a negative impact on inflation in China, while a positive impact in Indonesia and India. The implication is that governments of emerging economies should be prudent with their decisions on government spending.

This paper examines the impact of fiscal deficit and its financing pattern on private corporate sector investment in India, for the period from 1970–1971 to 2012–2013. Using Autoregressive Distributed Lag (ARDL) Models, the study finds that fiscal deficit crowds out private investment both in the long run and in the short run. The results also show that internal (domestic) financing of fiscal deficit has significant negative impact on private investment but external (foreign) financing of fiscal deficit has insignificant effect. In the short run, availability of bank credit plays a more important role in investment decision making than the rate of interest in India. The study suggests that government should maintain the fiscal deficit within a sustainable level by reducing its unnecessary non-developmental expenditure, subsidies etc. The government should restructure its financing pattern of fiscal deficit since internal financing has a significant negative impact on private investment.

This study examines the effects of innovation on productivity of Indian Manufacturing firms. Despite the voluminous literature on this area, the demanding line, i.e., various types of innovation effects on productivity growth, received little attention particularly in the Indian context; hence, our study fills the gap by employing firm-level data from Hyderabad and Bengaluru cities of India from 2011 to 2013. The estimated results confirm the significant impact of innovation on productivity upsurge in Indian manufacturing firms. Further, we investigate the spatial aspects of innovation considering the two cities separately. However, such city-based analysis does not produce any different findings.

The paper attempts to analyze the impact of fiscal policy on economic growth while considering level of development and controlling for state of institutions. We extend the Solow growth model by incorporating fiscal policy and institutions through using total factor productivity. Our empirical analysis includes a panel of 56 countries. The empirics demonstrate that impact of fiscal policy on growth is statistically insignificant in the full sample. However, splitting the sample into developed and developing economies, positive association with economic growth in developed economies and negative association in developing economies observed. Our findings thus inform that fiscal policy contributes positively to growth only in developed economies. The reason for this seems to be an enabling institutional environment in developed economies. This kind of enabling institutional environment allows fiscal policy to play positive role in developed economies and absence of such environment contributes to the negative impact of fiscal policy in developing economies.

Venture capital (VC) is usually invested in high risk technology companies at their early stages of development. In response to the industry risk environment, the VC fund managers have developed a set of risk management practices appropriate for the industry which include investment syndication. Furthermore, the VC funds are supplied by individual and institutional investors with different risk profiles and investment focus, usually in finite amounts and for a limited period of time. The funding agreement between the VC firms and the fund investors combined with the limited amount and time can lead to additional funding liquidity risks as the VC funds are invested in the portfolio companies. In this paper, we develop a simple two period model from a VC firm’s perspective with funding liquidity constraints to demonstrate how funding liquidity risk can influence syndication decisions. We subsequently analyze the implication of the model, derive a set of predictions and validate them with VC investment data from Australia. The analysis shows that syndication has both instrumental function in risk management and behavioral implications on risk culture essential for addressing the emerging frontiers of sustainability risks.

The present study investigates the causality-in-variance between macroeconomic variables and the stock market in Singapore from November 1990 to March 2013. This study utilizes the [Sanso, A, V Arago and JL Carrion (2004). Testing for change in the unconditional variance of financial time series. Revista de Economia Financiera, 4, 32–53.] test to detect the structural break in variance; a generalized autoregressive conditional heteroskedasticity (GARCH) process to model volatility; and the cross correlation function (CCF) causality method. The results demonstrate that the most important macroeconomic causes of stock market volatility in Singapore is exchange rate volatility. The findings provide preliminary insights on risk elements for policy makers monitoring the stability of financial markets by providing insights about volatility spillovers and risk transmission between the stock market and macroeconomic variables in Singapore.

This study examines the relationships between real exchange rate returns and real stock price returns in the stock market of Malaysia. The Kwiatkowski, Phillips, Schmidt and Shin (KPSS) and Dickey and Fuller (DF) unit root test statistics show that all the variables examined are found to be stationary in the first differences. The constant conditional correlation (CCC)-multivariate generalized autoregressive conditional heteroskedasticity (MGARCH) model shows that real exchange rate return of Malaysian ringgit against the United States dollar (RM/USD) and real stock price return of Kuala Lumpur Composite Index (KLCI) are found to be negative and significantly correlated. However, there is insignificant correlation between real exchange rate return of Malaysian ringgit against Japanese Yen (RM/¥) and real stock price return of KLCI. Moreover, the CCC-MGARCH models show that real exchange rate returns and real stock price returns of some stocks are found to be significantly correlated. The KPSS unit root test statistics show that the time invariant conditional variances of real exchange rate returns and real stock price returns are mostly found to be stationary in the levels. There is no evidence of Granger causality between the time invariant conditional variances of real exchange rate returns and real stock price return of KLCI but some evidence of Granger causality between the time invariant conditional variances of real exchange rate returns and real stock price returns. There is a link between the exchange rate market and the stock market in Malaysia but not every real stock price return is significantly linked with real exchange rate return.

Using data from the 2010 Graduates Occupational Mobility Survey, this paper examines the wage effects of over-education (OE) among graduates in science, technology, engineering, and mathematics (STEM) disciplines at the early stage of their careers. In the pooled OLS analysis, the negative correlation between OE and wages remains even if we were to estimate an augmented specification where OE is disaggregated according to perceived skill mismatch. However, the pooled OLS estimates are changed dramatically when we control for unobserved individual heterogeneity (i.e., ability) using the panel FE estimation procedure; namely, reduced coefficients in the wage equation compared to pooled OLS estimation.

Empirical evidence of the conspicuous consumption theory is limited and ambiguous. It has been shown, however, that the consumption of life experiences makes people happier than the consumption of material goods. Yet, these studies typically conduct dichotomous comparisons and do not distinguish between conspicuous and inconspicuous consumption. Conspicuous and inconspicuous online social networking devices (OSND) are experiential goods and as such fall between life experiences and material goods. The objective of this paper, thus, is to examine the relationship between conspicuous consumption of OSND and subjective well-being, which is proxied by happiness and mental health. Cross-sectional data ($n=500$) were collected in 2015 using probability sampling. The ordered logistic regression results reveal that conspicuous consumption of OSND is negatively related with happiness and mental health in all regressions as hypothesized, while the coefficient on inconspicuous consumption of OSND is positive. Also, the number of virtual friends is negatively associated with happiness. Among the control variables, it is noteworthy that respondents with high blood pressure, used to capture physical health, have lower happiness and mental health, while respondents with higher education and high own monthly income exhibit higher happiness and mental health. Respondents, whose personality can best be characterized as “agreeable”, have lower happiness and mental health which is in line with the old saying that “nice guys finish last”.