The Singapore Economic Review

We evaluate the performance of the penalized vector autoregression (VAR), diffusion index (DI), and regression tree-based ensemble learning models to forecast Singapore’s macroeconomy using high-dimensional data. Our dataset consists of 220 monthly time series that capture the economy of Singapore and 20 monthly times series that capture the global economic environment. We find that the penalized VAR model and the ensemble learning model give an outstanding performance in both short and long horizons. On the other hand, the performance of the DI model depends crucially on the methods to select the number of factors. In particular, a conventional selection method may overestimate the true number of factors and thus deteriorate the forecasting performance of the DI model. Additionally, the VAR and DI models may utilize different information in forecasting.

It is widely accepted that a market-based instrument such as a tax on greenhouse gas emissions is effective in motivating firms to improve energy efficiency, environmental management and invest in environmentally-related research and development (R&D). However, modern corporations tend to separate ownership and management, and decision-making executives who are myopic may not share the firm owners’ concern about their firm’s exposure to long-run costs and risks associated with climate change. Hence, executive wage contracts should include rewards for environmental performance, particularly in energy efficiency and developing R&D to reduce emissions. This paper examines the effect of implementing executive compensation that is partially indexed to abatement in a monopolist firm, in which decision-making is delegated to a manager under an emissions tax policy. In equilibrium, it is shown that the new wage compensation leads to more abatement, greater production of output, and higher wages for the manager compared with a conventional wage scheme where wages are solely indexed to profits. Hence, the government imposes a lower emissions tax on the firm. More importantly, this public–private joint mechanism results in net social welfare improvement in equilibrium. However, whether the monopolist’s profit is higher in the new wage scheme depends non-monotonically on the abatement efficiency technology and the extent of wage indexation to profitability.

Economists usually regard environmental issues as drivers of allocative distortions within markets. Hence, they claim that corrections of such distortions, for example, by recourse to the internalization of externalities, are firmly rooted within the market framework. Therefore, the traditional view is that environmental issues fall fairly and squarely within the domain of microeconomics. This paper argues that such a view is flawed. The primary reason is that externalities are never fully internalized. Within any market, there always exist residual externalities, which do accumulate over time. Therefore, the same way as the aggregate of market transactions lead to the definition of national product in macroeconomics, the aggregate of residual externalities lend credence to the recognition of nature as capital that depreciates. In accordance with this recognition, this paper illustrates the reformulation of long run stabilization frameworks in macroeconomics. The analysis of these reformulated frameworks illustrates different configurations for policy variables as illustrated with reference to South Korea.

Although CO₂ emissions are purely global externalities and unlikely to be addressed by individual countries, empirical attention has typically been on the national level as national efforts have come in to plug the gap. The contribution of this study is therefore to investigate the effect of population aging on CO₂ emissions, controlling for income and fossil fuel energy consumption, using panel data of 25 OECD countries during 1980–2015. After applying the panel cointegration approach such as fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS), we discover that population aging appears to reduce CO₂ emissions, ceteris paribus. We also confirm the existence of the environmental Kuznets curve (EKC) relationship with an inverted-U curve, where CO₂ emissions increase with income level until it reaches the estimated turning point and then starts to turn down. Other evidence shows that fossil fuel energy consumption increases CO₂ emissions, other things equal. We believe that these findings present sustainable policy directions that may help solve the problem of population aging our world is dealing with today.

Attempts within the prior studies to determine whether the disparities in national saving rates can be explained by cultural attributes have been largely unsuccessful, essentially as a result of the formidable problems of measurement of culture, data availability and endogeneity. We first extend the prior research using the six measurable cultural dimensions of [(). Culture and Organizations: Software of the Mind, Intercultural Cooperation and Its Importance for Survival, 3rd Edition. New York: McGraw Hill], along with the largest panel database currently available, containing 84 countries over the period 1981–2012, on culture-related variables and saving rates, to test our hypothesis that cultural factors can influence private saving behavior in an international context. We then focus our study on three main cultural variables in East Asian countries — Confucianism, Long-term Orientation (LTO) and Uncertainty Avoidance (UA) — and find that they all have significant impacts on private saving rates around the world. Our findings also potentially solve the puzzle of why China, Japan and other East Asian countries save so much and so persistently since we find that the high LTO measures within these regions determine their high levels of private savings, whilst their low UA measures explain the persistence of their high saving rates, even during a period of financial crisis.

Shortfalls in infrastructure expenditure represent a ubiquitous problem in all Australian local government systems as well as in many other countries. In this paper, we use an evolutionary model to describe how local government investment decisions are made. We demonstrate that fear of reputational damage among elected councilors could cause herding behavior resulting in convergent and overly cautious investment behavior by councils. Under these conditions, divergent viewpoints amongst council members are discouraged and local government may become moribund in its decision-making. We show how this may result in “gaps” in infrastructure investment.

This paper examines the equity and efficiency effects of social insurance in the presence of insurance fraud and linear income taxes and shows the following findings. (i) Under the commonly accepted assumption of decreasing absolute risk aversion (DARA), the social insurance benefit may increase insurance fraud, whereas raising the marginal tax rate (lumpsum transfer) of the linear income tax also causes insurance fraud to increase (decrease). (ii) Equity and efficiency effects of social insurance are conflicting rather than complementary with each other.

This paper aims to investigate the role of a consumer satisfaction index (CSI) for financial investments in the Hong Kong market. Using yearly data for Hong Kong consumer satisfaction index (HKCSI) to compile a CSI at company level, the effect of consumer satisfaction on company market value is identified. A hypothesized investment portfolio based only on CSI at company level is created, and its return compares with a widely used index measuring stock market performance in Hong Kong. A formal statistical test on the outperformance of portfolios that load on consumer satisfaction is conducted. Using the Capital Asset Pricing Model (CAPM), the beta risk of the entire time period is evaluated, and shows that the portfolio risk based on company level CSI is not significantly different than the market risk. This paper concludes therefore that consumer satisfaction can be incorporated into financial models and applied for formulating investment portfolios with better performance than the market rate in Hong Kong.

One main motivation of attracting inward foreign direct investment (FDI) for emerging economies is to obtain knowledge spillovers from developed countries and promote domestic innovation. The effects of FDI on innovation include both the direct effects from FDI on targeted domestic firms and indirect effects from foreign ownership on other foreign and domestic firms’ innovation. Applying a design with a two-stage randomization procedure that allows for both direct and indirect effects of FDI on innovation and allows these two effects to vary with the share of foreign firms in a well-specified cluster, we empirically investigate the effects of inward FDI on Chinese firms’ innovation using patent filings as a proxy for innovation. Our findings indicate that the potential innovation of firm varies with the share of foreign firms in the cluster. The approach used in this paper can help researchers and policymakers to better understand the benefits of inward FDI promotion programs, agglomeration and regional policy.

This study analyzes the relationship between entrepreneurship intention and personal characteristics and skills by using the surveys we conducted in Turkey on 1465 senior university students. We use a modified version of the Entrepreneurial Orientation (EO) scale and the Political Skills Inventory to measure some personal characteristics and skills. We also use the nine sub-dimensions of these two scales. Probit model and wavelet coherence analysis results show that proactivity, entrepreneurship, and networking sub-dimensions of the scales are related to entrepreneurship intention. We also find that gender, the number of siblings, the grade point average (GPA) of the students, their family’s education level, the parent’ ownership of an enterprise, and the number of non-governmental organizations (NGO) that they are a member of are also related to entrepreneurship intention. Results may be useful to understand and enhance entrepreneurship potential.

While a large empirical literature finds that financial development is beneficial for economic growth, recent evidence suggests otherwise. We contribute to this debate by examining the link between credit growth skewness and long-run growth. Earlier literature found that economies that are characterized by negative skewness in private sector credit growth experience faster output growth. We revisit this relationship using a large panel dataset that encompasses both advanced and developing economies and the aftermath of the global financial crisis. While our results reconfirm an association between credit skewness and economic growth, the relationship is more nuanced than previously thought. The beneficial growth effects of negative skewness are evident only prior to 2000. Our findings help explain why credit cycles positively affected economic growth in emerging markets in the past and why advanced economies’ growth has been sluggish since the 2008–2009 global financial crisis.

This paper investigates the macroeconomic effects of unconventional monetary policies by estimating a time-varying parameter structural vector auto-regression (TVP-VAR) using Japanese monthly data beginning with the implementation of quantitative easing in 2001. The results of the empirical study can be summarized in four points. First, the impulse responses of output to a positive monetary policy shock rose during the period of quantitative easing (March 2001–July 2006) but declined after the comprehensive monetary easing began (October 2010–July 2015). Second, the impulse responses of inflation to a positive monetary policy shock became stably positive after the introduction of inflation targeting in January 2013. Third, the impulse responses of stock prices to positive monetary policy shocks rose each time an unconventional monetary policy was adopted. Finally, the recovery of the credit transmission channel might be attributed to the level of non-performing loans remaining low. The third result implies that increased stock prices from a monetary policy shock are primarily affected by foreign capital because foreign capital responds more strongly than domestic capital to unconventional monetary policy.

In this study, we examine the asymmetric effects of terrorism and economic growth in Pakistan over the period 1970–2016, while considering the role of capital per worker and structural breaks. We use the non-linear ARDL approach to establish the long-run association and to estimate the short-run and long-run effects accordingly. The results indicate the presence of asymmetries in both long and short run. Moreover, 1% decrease in terrorism results in an increase of per capita income by 0.02% in the long run and 0.001% in the short run. Assuming symmetry, the long run capital share is 0.47. In asymmetric relation, a 1% increase in capital share increases output by 0.55%, whereas a 1% decrease in capital stock decreases output by 0.26%. The break effects show that the years 1993 and 2004 have negative effects on growth. The vector error correction model-based causality results indicate a unidirectional causality from terrorism to per capita income. Overall, the results highlight that terrorism is growth retarding.