The Singapore Economic Review

Since 1995 Singapore has launched a series of reforms to liberalize its electricity market. More participants are introduced both in the power generation side as well as wholesale and retail markets to facilitate competition and promote efficiency. This paper aims to examine the efficiency of Singapore’s electricity market by detecting exceptionally high electricity prices as outliers. In particular, we first propose a dynamic regression model that accounts for market demand and supply, production cost, as well as time effects. Based on the regression, an upper bound is then constructed for the identification of outliers. Using a unique data set from 2003 to 2019, we find fewer outliers over time, indicating that Singapore’s electricity market becomes more efficient in recent years. We obtain consistent results by incorporating alternative model specifications such as hybrid model and Least Absolute Shrinkage and Selection Operator (LASSO). The results are also robust to different subsamples and data frequencies. In addition, a more comprehensive set of criterions for model selection is also proposed in this paper.

There is a high level of residual government ownership after privatization processes of state-owned firms in many transitional economies. Accordingly, the role of residual government ownership in firms in these economies draws strong attention from researchers resulting in a huge volume of papers in the literature. This naturally motivates us to examine whether state ownership affects the firm value in Vietnam, a successful transitional economy. More specifically, this paper aims to provide further insights into the impact of residual government ownership on the value of privatized firms listed on the Ho Chi Minh City stock exchange covering the period from 2009 to 2014. Using panel data techniques of fixed effects estimator, our empirical results indicate that residual government ownership has a negative effect on value of Vietnamese firms. This finding provides important implications for different stakeholders in transitional countries.

We develop an infinite-horizon dynamic search model to understand education–job mismatches in the labor markets where job seekers face three different types of labor markets based on their minimum educational requirements. Using a new dataset, we find that our model matches the US data well when we introduce heterogeneity through wage distributions. We use counterfactual experiments to show that even when the general unemployment level is kept constant, if the conditions within different job market types change, overeducation levels may increase or decrease dramatically. We find that regardless of the general unemployment level, frictions in the job market is the main reason for overeducation. However when unemployment is high, highly educated job seekers may settle for jobs below their education level at a higher level leading to a high degree of overeducation in the labor market and crowding out job seekers who have lower level of education.

This study investigates the patterns and trends in the returns to skill in the Indonesian labor market over the period 2007 to 2013, a period of rising earnings and income inequality. The study takes into account the labor demand and supply across regional development regions and over time. It presents evidence on the returns to skill related to structural changes in the economy through the growth of modern services and the resource boom. It confirms that skill premiums varied across regional development areas. The composition of industries across regions, female labor participation, the proportion of casual workers, the supply of tertiary-educated workers and factors unique to each region are all determinants of the regional skill premiums. The results support the policy focus on developing human capital in Indonesia to meet the rising demand for skilled workers and show the role of the manufacturing sector and minimum wages policy in reducing the skill premium.

This paper uses data compiled by John Lossing Buck from his rural China survey conducted between 1929 and 1933 to analyze the impact of weather calamities and conflict on agricultural productivity, farm wages and nutrition intake. Our results support the conditions required for a Nutritional Poverty Trap (NPT) to be present, while anecdotal evidence points to the potential presence of a nutritional poverty trap for large segments of China’s agricultural economy. We find a lagged effect of climate shock on nutrition, but find no evidence that the many conflicts of the day affected nutrition. This is more likely due to the avoidance of conflict zones by surveyors, but may also support the notion that the effects from conflicts were local and short-lived due to the resilience of farmers.

This paper enriches the misallocation literature by identifying the role of marketization based on China’s manufacturing database. We find that when the effect of misallocation on TFP dispersion is larger than that of market competition, the TFP dispersion of private enterprises tends to increase, misallocation decreases and market competition increases. However, as the dispersion of state-owned enterprises in China decreases, misallocation and market competition both increase.

This paper analyzes the emergence of new technology-based sectors in China based on Chinese patent data. We apply the research framework based on product-space methodology to Chinese patent data and find that China displays similar characteristics to other developed countries. The technology structure based on local accumulated capabilities at the province level plays the biggest role in the emergence of new technology-based sectors. Furthermore, we find that the accumulated technological capabilities in adjacent provinces have positive spillover effects to this emergence and the accumulated technological capabilities in non-adjacent provinces have uncertain effects to this emergence; the spread of capabilities is constrained by geographical distance.

Net importing countries are very susceptible to changes in the value of their currency. Pakistan, being a small open economy, faces a constant pressure in its current account and BOP, which leads to unavoidable stress on its exchange rate. Exchange rate movements affect the cost of imports directly which have been studied extensively in empirical literature. However, these studies ignore the possibility of asymmetric effects of exchange rate and its impact on import demand in Pakistan. An appreciation in exchange rate may have a different impact on demand for imports than depreciations depending upon the level of rigidity in consumer preferences as well as the availability of substitutes for consumer goods, capital goods and raw materials. We use quarterly data of Pakistan’s consumer goods, capital goods and raw material imports from 2005:Q1 to 2018:Q4 and employ a relatively recent econometric methodology, namely, Nonlinear Autoregressive Distributed Lag (NARDL) technique. The results confirm the existence of asymmetric impact of exchange rate in the long-run. The appreciation of currency has more pronounced impact in increasing imports relative to the depreciation of it in decreasing imports. There are further differences of this effect within imports across consumer goods, capital goods and raw materials. We present policy implications of this asymmetric effect of exchange rate on disaggregated consumer imports.

China faces a critical economic structural transformation with increasing financial instability and uncertainty, necessitating a greater need for accurate measurement of systemic financial risk. In the paper, this work analyses the systemic financial risk in China between 2011 and 2020 based on financial development, fragility and risk indicators and the world economy to construct a comprehensive index of systemic financial risk (CISFR). The results show an upward trend in China’s financial risk in the past 10 years and a mid-to-high level fluctuation in the past five years, mainly driven by risks in the banking system, securities market and real estate market. In 2021–2022, China’s financial system is still in a high-risk stage, and high systemic risks are still an important economic issue. The study’s comprehensive index method can be extended to emerging economies. It reflects the main driving factors of financial risk by assigning weights to basic indicators from a multidimensional perspective, thus providing a reference for policymakers to prevent and control financial risk.

This study examines the impact of the 1997 Asian financial crisis and the 2008 Global economic crisis on the capital structures of Korean non-financial listed companies. Using a panel data covering 1,159 Korean listed non-financial firms from 10 industrial sectors over a 31-year period (1985–2015), this study investigates the patterns of firms’ capital structures before and after the crises and identifies their speeds of adjustment toward the optimal leverage. This study finds different effects of the two crises on both capital structures and adjustment speeds. The average debt ratio fell significantly after the 1997 Asian financial crisis. The distance between the optimal and the observed debt ratios shrank after the Asian crisis, while the speed of adjustment increased two-fold. Unlike the Asian financial crisis, the global economic crisis of 2008 had a positive effect on companies’ debt ratios and the speeds of adjustments toward the optimal leverage. Our empirical analysis shows that, on average, the Korean non-financial listed companies decreased their debt ratios over the entire period of observation, with the leverage being the highest before the Asian financial crisis and lowest after the global economic crisis. Our results also show that the debt ratios of Korean chaebols were higher than that of non-chaebols. Moreover, we find that the high level of leverage of Korean firms was associated with tangible assets, income variability, size and age of the firm, non-debt tax shield and uniqueness.

This study builds an agent-based computational finance platform that can reproduce the basic characteristics of China’s initial public offering (IPO) market and explain its anomalies. The results of our computational experiments show that along with the increasing proportion of sentiment strategy investors (i.e., those with an information advantage) entering the market, the IPO underpricing rate also rises correspondingly. Sentiment investors usually suffer losses because of their irrational investment decisions, while sentiment strategy investors profit by preying on sentiment investors.

This paper investigates whether the portfolio-balance approach or the flow-oriented theory better explains the connection between stocks and exchange rate in various time-horizons in the four East Asian countries — Indonesia, Thailand, South Korea and Japan. For the analysis, we use different approaches of the wavelet methodology — wavelet correlation, wavelet coherence and wavelet cross-correlation. Wavelet correlations suggest that negative correlation is dominant across the wavelet scales in the emerging East Asian markets, which indicates that the portfolio-balance approach, that is, capital mobility stands behind this nexus. For the Japanese case, we find positive wavelet correlation across the scales, which suggests that the flow-oriented model or current account explains the interlink. Results of wavelet coherence are in line with the wavelet correlation results, and these results provide an additional evidence that investors’ panic during World financial crisis was the main culprit behind the massive financial fund reallocation in the all emerging Asian markets.

This study examines the relationship between bank-specific variables, macroeconomic variables and non-performing loans (NPLs) in the seven countries of Southeast Asia (Cambodia, Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam) during the pre-COVID-19and COVID-19 pandemic. This study adopts panel data regression and distributed lagged regression to examine the impact of bank-specific variables and macroeconomic variables as NPL determinants. The results show that bank-specific variables significantly correlate to NPL, but limited evidence indicates the influence of macroeconomic variables during pre-COVID. Nonetheless, macroeconomic variables are significant to NPL with the emergence of the pandemic, while the bank-specific variables are found to be insignificant. It shows that macroeconomic variables have a greater impact during the turbulent period as they affect most businesses, especially during the pandemic. Furthermore, macroeconomic variables are observed to have a stronger influence on developed countries, but the impact of bank-specific variables is stronger in emerging countries. The results of this study assist policymakers, regulators, banks and governments in identifying the determinants of high NPL as the indicator of a financial crisis. Greater emphasis shall be given to the changes in macroeconomic variables.

Using a panel dataset of 45 banks operating in Malaysia’s dual banking system over the period 2001–2017, this paper investigates whether and how the liquidity creation of Islamic banks is determined differently from that of the conventional commercial banks. The preliminary analysis shows that bank capital, size, risk and market power are significant determinants of bank liquidity creation in the dual banking system, whereas macroeconomic factors exert little influence. When banks are differentiated by bank types, the paper finds that bank capital, size and risk are related to more liquidity creation of Islamic banks vis-à-vis conventional banks, particularly in terms of on-balance sheet liquidity creation. Bank market power affects the liquidity creation by Islamic banks negatively, as opposed to the positive effect observed for conventional banks. This paper also finds that the liquidity creation pattern of Islamic banks is pro-cyclical, given that their on-balance sheet liquidity creation is more responsive to changes of economic growth and monetary policy rate. The overall results suggest that the institutional features of Islamic banking and the country’s regulatory support for the industry cause Islamic banks to respond heterogeneously from their conventional counterparts. The results offer numerous key policy implications for countries adopting dual banking systems.

This study empirically investigates a monetary policy reaction function for South Asian economies by incorporating financial stability as an additional policy objective in the central bank’s loss function. Empirical results are estimated by applying auto-regressive distributed lag (ARDL) approach to cointegration and vector autoregressive (VAR) approach using time-series data of five South Asian countries, namely, Pakistan, India, Bangladesh, Nepal and Sri Lanka. Estimated results indicate that monetary policy significantly reacts to the level of financial stability in all countries. The result further suggests that central banks would tighten monetary policy if output gap widens and exchange rate depreciate. In addition, central banks of Pakistan and India do not respond significantly to inflation gap.

We empirically test the hypothesis that, for married individuals with time-inconsistent preferences, leaving the management of family budgets to their spouse functions as a commitment device for savings. We conduct a cross-sectional analysis based on the micro-data of married Japanese couples obtained from waves 2009 and 2010 of Osaka University’s Preference Parameters Study. Our results show that when wives have time-inconsistent preferences, their household savings are more likely to go as planned if they leave household budgets to their husbands in comparison to when they make these decisions themselves. However, time-inconsistent individuals do not actively use leaving the management of family budgets to their spouse as a commitment device for savings. Considering these, we conclude that individuals do not recognize the benefits of leaving the management of family budgets to their spouse, but it can work as a commitment device.