The Singapore Economic Review

Over the last 25 years, Asia’s economic rise has been extraordinary. Its share of global gross domestic product (GDP) has risen from 5.8% to 22.9%. The first phase of high economic growth — up to 1995 — saw Asia enter the global supply chain primarily with labor-intensive/low-cost manufacturing. Domestic consumption was a fairly low share of GDP; Asia was manufacturing mainly for consumption in the US and Europe. As such, it was primarily a rule-taker. In the second phase — from 1995 to 2020 — it gradually turned into an economic force joining the US and Europe in shaping the global economy, exercising significant influence upon the value chain, the cycles of the global economy, transport and logistics, the global capital markets and consumption patterns (consumer preferences and tastes). While not yet among the leading rule-makers, it had become difficult for policymakers (public and private) to make decisions without Asia’s consent. To form an opinion of today’s emerging third phase — post 2020 — the intriguing question is whether the Asian countries have adopted what may be termed Anglo-American economic thinking (basically, the primacy of the market). Or whether behind the curtain, the Asian economy works in its own way diverging from the American and British economic schools. Since demographics and sheer economic scale mean that Asia will dominate the global economy in the years to come, the nature of the Asian economy will be of crucial importance for the future global economy. The conclusion of this paper is that “Asia” in many respects differs — and fundamentally so — from market economy principles. How this prospect should be interpreted is also evolving, as circumstances change. Certainly, the repercussions of COVID-19 have not been the same in the US, Europe, East Asia and South Asia — and this may suggest that socio-political structures have a stronger impact on economic outcomes than economic theory teaches, thus calling into question the global validity of market economy principles.

This paper seeks to establish whether there exist factors that could render a country’s Gross National Product (GNP) greater than its Gross Domestic Product (GDP). It is not known whether a similar study has ever been previously undertaken as the literature search fails to discover any. Data of countries worldwide, to the extent of their availability, are drawn generally for years that fall within the 2000–2016 period for this study. The factors postulated as positive and negative determinants include the savings-investment gap, international reserves, technological sophistication, demography, unemployment, export orientation, income inequality, size of the primary commodities sector, financial repression, tax incidence and labor market regulations. Of these factors, the logit and probit regressions pursued reveal that only income inequality, size of the primary commodities sector and export orientation are the significant determinants. They work to dampen the probability of a country to register a GNP higher than GDP. A supplementary panel regression analysis also suggests these as factors that could reduce a country’s GNP to GDP ratio. In light of such findings, countries should address the problem of disparity in income distribution and promote indigenous ownerships in their primary commodities and export-oriented sectors if they are striving for an excess of GNP over GDP.

This paper highlights the policy aspects of India and China, in the context of consensus building on bilateral trade, which is the cornerstone of diplomatic and political ties between the two countries. India and China have witnessed uninterrupted economic development with a significant rise in bilateral trade because of protrade policies in the last few decades. In this backdrop, this paper examines the dynamic spillovers of India–China’s bilateral trade on the economic growth of the two countries. For the purpose, Autoregressive distributed lag (ARDL) model in multivariate framework is utilized with gross capital formation (GCF) and foreign direct investment (FDI) as two additional explanatory variables. The results highlight that the India–China bilateral trade share has significant long-run impact on the growth of GDP per capita (GDPP) of the two countries, while the impact is more pronounced for China. The growth rates of the two countries are found significantly cointegrated with the variables in question. The results provide important insights in foreign trade patterns, with policy implication for trade and economic co-operations between the two countries.

This paper applies business cycle accounting methodology to analyze the sources of aggregate fluctuations in Thai economy, especially during the recent severe recessions in 1997–1998 and 2008–2009. This exploration helps researchers uncover possible shocks and frictions that drive business cycle in a small and open economy within a minimal model set-up. Under this methodology, a fluctuation in aggregate output can be accounted for by exogenous time-varying wedges, namely efficiency wedge, investment wedge, labor wedge, government wedge, etc. This study found that the efficiency wedge is essential in accounting for aggregate output, consumption and investment fluctuation, while the bond wedge, which only present in an open economy setting, is a prime factor in accounting for movement in current accounts. I conducted counterfactual experiments to see what accounts for the output drop during recent recessions. I find that the efficiency wedge played a key role in recent recessions in Thailand, while the investment wedge was accounted for slow economic recovery after the recessions.

This study analyzed the channels responsible for the spillover effect of the US Federal Reserve’s (Fed’s) forward guidance on China’s financial markets with an event study and EGARCH model with data collected over the past decade. The Fed’s forward guidance affects China’s foreign exchange, bond, stock and money markets. In the three trading days before and after the event, China’s foreign exchange market had an instantaneous reaction, the bond and stock market had lagged reactions, and the money market reaction lasted for the full event window. The Fed’s forward guidance on China’s financial market differs based on the Fed’s monetary policy, guidance type and whether the guidance content is adjusted or not.

The BRICS (Brazil, Russia, India, China and South Africa) acronym was created by the International Monetary Foundation (IMF)–Group of Seven (G7) to represent the bloc of developing economies which crucially impact on the global economy by their potential economic growth. Most of the foreign direct investment are considering the stock markets of BRICS as the most attractive destination for foreign portfolio investment. This study aims to identify the relationship between macroeconomic variables and the stock market index values of BRICS and generate accurate predictions for index values by performing linear regression and artificial neural network hybrid models. Monthly data from January 2003 to December 2019 are used for the empirical study. The results indicate that a strong correlation exists between the stock market and macroeconomic variables in BRICS over time. The hybrid model is observed very accurate for index value prediction where the mean absolute percentage error (MAPE) value is 0.714% for the whole data set covering all BRICS countries data during the study period. Additionally, MAPE values for each of the BRICS countries are, respectively, obtained as 0.083%, 2.316%, 0.116%, 0.962% and 0.092%. Thus, the main findings of this study show that while neural network-integrated models have high performances for volatile stock market prediction, macroeconomic stabilization should be the priority of monetary policy to prevent the high volatility of stock markets.

Fiscal policy is an essential ingredient of economic performance. The fiscal policy is considered as a short-run measure; however, this has long-lasting outcomes for any economy. The current study has examined the connection among different constituents of fiscal policy, i.e., federal government revenues and federal government expenditures; federal government revenues and different components of federal government expenditures; federal government expenditures and different components of federal government revenues and fiscal deficit and influential budgetary variables in the context of the economy of Pakistan. The study has empirically investigated the relationship among the budgetary variables for Pakistan from 1979 to 2017. For data analysis, time-series econometric techniques such as auto-regressive distributive lag (ARDL) approach and Granger causality test have been employed. The results of ARDL bounds test approach suggest the existence of long-run equilibrium relationship among the variables. The result of CUSUM and CUSUMSQ shows the stability of functional relationship tested in this study, which means that model is a useful instrument for policymaking. So, a rise or fall in budgetary variables causes changes in fiscal deficit in long run. The results of study endorse the proof of spent-and-tax hypothesis in the economy of Pakistan. The study suggests the need for extensive fiscal policy reforms in Pakistan.

The outward foreign direct investment (OFDI) is vital for the sustainable development of China’s banking sector. This paper examines the location determinants of OFDI by China’s banks during 2003–2015 with a set of negative binomial panel regression models. We show that the OFDI for China’s banking sector generally exhibits market-seeking, resource-seeking and efficiency-seeking motivations. The efficiency-seeking motivation is mostly through the incentive to avert credit risk. The OFDI also tends to flow to economically stable countries. Our results indicate that the Chinese banks’ investment decisions are mainly in line with fundamental theories and are robust for different samples and periods.

The income gap between the rich and the poor is growing in China. The Free Trade Zone policy has been adopted in China over the past decade. We analyze whether the Free Trade Zone policy contributes to China’s income disparity based on a panel of provincial level data covering the period from 2009 to 2017. The empirical results show that the implementation of the Free Trade Zone policy has significantly reduced China’s income disparity between provinces, but different regions have different effects. The impact of this policy on the distribution of income has significantly narrowed the income gap in the eastern region. Meanwhile, the policy effect is long lasting, with the influence of the policy increasing over time. In particular, the establishment of Free Trade Zones in provinces with relatively low income, low trade dependence and low innovation capability is more conducive to narrowing the income gap. Furthermore, the establishment of Free Trade Zones in provinces with a relatively high unemployment rate has obviously decreased the income gap; however, in provinces with a low unemployment rate, the income gap has increased. Our empirical results are robust with different model specifications.

This paper examines the relationships among energy consumption, economic growth, inequality, and poverty in Iran. We estimate these relationships at both the aggregate and sectoral level using instrumental variables to address endogeneity and simultaneous equation models to enhance efficiency. Results show that decreasing inequality will be beneficial for economic growth, poverty alleviation and energy access. Inequality can negatively affect GDP directly, as well as indirectly through its negative effect on energy consumption. Similarly, inequality can increase poverty both directly as well as indirectly through its negative effect on energy consumption. We also find that increasing energy consumption has multiple benefits: it increases GDP, tends to decrease inequality and decreases poverty. Energy consumption decreases poverty both directly as well as indirectly via its effect on decreasing inequality. Our results therefore suggest that policies to improve energy access are important, and will have the benefits of increasing GDP, decreasing inequality and decreasing poverty.

This paper provides the first systematic micro-level evidences on the effectiveness of anti-corruption campaign in disciplining public officials and its impact on income distribution. Based on China Household Income Project (CHIP) survey data 2007 and 2013, we found that party and government officials had significant hidden income and the public–private earnings gap was as high as 8% before the campaign. However, the hidden income become not significant and the earnings gap declined to $-$18% in this post-campaign period. The regions inspected by central anti-corruption inspection groups experience larger public earnings penalties compared to the other regions. Overall, our findings suggest that the privilege of public officials declined sharply during this anti-corruption campaign.

In China, policy pilots are not about implementation; it is meant to establish new institutions, adopting new practices or finding new solutions that may not be officially endorsed or publicly recognized yet. Pilots are also not “experiments” in which interventions are clearly designed and executed under strict control. It is to some extent a form of muddling through with both central and local contributions. In this paper, we examine the local government’s role in a land pilot scheme in Deqing County in Zhejiang Province since 2015 to examine the relationship between the central and local governments.

This study identified the impact of a seismic shock on technological progress in earthquake-stricken areas (ESAs) using a synthetic control method. Technological progress was measured using the total factor productivity (TFP) and the TFP growth rate. The ESAs after the Wenchuan Earthquake in China were used as an empirical case study; the Solow residual model was used to assess the TFP and the TFP growth rate in 16 districts. Counter-factual dynamics for the ESAs were constructed to exclude the effect of the macro-economy. The research findings indicate that technological progress in the ESAs after the Wenchuan Earthquake improved as a result of reconstruction investments. However, there were differences in the speed of technological progress between ESAs. These differences may be attributed to the differences in the industrial characteristics between ESAs. The study concludes that the technological progress of the secondary industry, such as the manufacturing industry and building industry, is more resilient. This refers to the capacity to resist economic losses after the seismic shock, compared to the tertiary industry, such as the service industry and tourist industry. However, there was a larger long-term advancement in the technological progress in the tertiary industry compared to the secondary industry after the earthquake. With this understanding, ESA governments can implement appropriate strategies to meet both short-term needs and sustainable economic growth.

Because of the difficulty of corporate cash flow forecasting and cash demand forecasting, the corporate cash holding decisions have always been a focus in theory and practice. This paper constructs corporate cash holding patterns by combining the two basic characteristics of cash holding level and volatility, and uses the dynamic panel model to test the impact of different cash holding patterns on corporate performance. The research findings reveal that there are significant differences in the impact of different cash holding patterns on corporate performance, with the stable and normal-level cash holding pattern having the greatest positive impact, while volatile and low-level cash holding pattern proved to be greatest negative impacts.

In this paper, we analyze the demand side of the credit card market. Using unique survey data and a discrete choice model, we uncover consumer preferences for all price and nonprice features of credit cards. Our results provide evidence for an alternative explanation for the credit card pricing puzzles. We show that consumers view credit cards as highly differentiated products with both bank-level and card-level nonprice features. When selecting their credit cards, they predominantly prioritize these nonprice features over prices. Although private banks charge higher prices for their credit card services than other banks, the majority of consumers choose them as issuers due to their bank-level and card-level nonprice features. Consumers who prioritize prices tend to choose the credit cards of participation or public banks. Widespread branch/automated teller machine networks as bank-level features and installments, bonuses/rewards/miles and the prestige of the card as card-level features are particularly effective in consumers’ decisions to choose private banks as issuers. Such strong preferences for nonprice features seem to furnish private banks with market power. Hence, we argue that underlying issuers’ market power is also this differentiated nature of credit cards, for which regulatory measures are not self-evident.

This paper estimates carryover effects of attending elite high schools on job markets after students’ university graduation. Most of the previous literature focused on returns of elite or private school attendance on academic achievements in university education. Instead, this study investigates whether the education effect of elite high school is carried forward to the job market after university studies. Our study utilizes unique university-employment-matched data obtained from one Korean university administration. In addition to students’ academic performance, such as grade point average (GPA), we also include participation in extracurricular activities to better control for the self-selection effect portable from elite high school as well as the quality of university education. The empirical results show that the education at elite high schools does not only positively affect the academic performance at university, but interestingly, it is found to be carried forward to the job market even after university graduation.

This paper studies the impact of firm social insurance contribution on investment by exploiting a contribution collection administration reform in China. Using a difference-in-differences strategy, we find that Chinese firms increase social insurance contribution after the reform that the premiums collection duty is transferred from local social insurance administrations to tax bureaus for better enforcement. As a consequence, the enforced increase in contribution decreases firm investment significantly. On average, a one percentage point increase in social insurance contribution decreases firm investment by 1.5 percentage points. The effects are more pronounced among firms with higher manufacturing costs or tighter financial constraints.