Trinity Development Theory ` To explain: ` Why some countries develop, while some do not? What are the key ingredients of growth of the Singapore economy? ` Why some countries are able to have superlative economic growth rates and are able to catch up with the already developed industrial nations? Why was Singapore able to growth at superlative growth rates of around 10% in the late 1960s, 1970s, 1980s and early 1990s? ` Why do affluent industrial nations exhibit slow growth rates? Is Singapore’s potential growth rate slowing down? What can we do?
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Lecture 3 Trinity Development Theory and Singapore Economic Development
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Trinity Development Theory ` To explain: ` Why some countries develop, while some do not? What are the key ingredients of growth of the Singapore
economy? ` Why some countries are able to have superlative economic
growth rates and are able to catch up with the already developed industrial nations?
Why was Singapore able to growth at superlative growth rates of around 10% in the late 1960s, 1970s, 1980s and early 1990s?
` Why do affluent industrial nations exhibit slow growth rates? Is Singapore’s potential growth rate slowing down? What can
we do?
Trinity Development Theory ` (1) EGOIN Theory
` (2) Triple C Theory
` (3) S Curve Theory
EGOIN Theory ` E = Entrepreneurship
` G = Government (and the bureaucracy)
` O = Ordinary Labour (human capital)
` I = Investment (physical capital)
` N = Natural Resources (natural capital)
Social capital (active agents)
(passive agents)
EGOIN Theory ` The higher the per capita EGOIN, the higher the level of
per capita income ` The bigger the ∆ per capita EGOIN, the faster the growth
rate of per capita income
EGOIN Theory ` Multi-determinant theory ` EGOIN are the inputs, GDP is the output ` “EGO” are active factors, most critical ` G must take on an enabling, supporting and facilitating role for
E and O to function property ` Aptitude and attitude of government and people
` I and N are passive factors
Triple C Theory ` Gunnar Myrdal: Circular Cumulative Causation Theory ` A change in one form of an institution will lead to successive changes
in other institutions. These changes continue in a cycle and are cumulative in that they persist in each round.
` E.g. : Closing down certain lines of production in a community → reduction of employment, income and demand → affect other sectors of the economy through the multiplier effect → depressing effect on new investments, which in turn causes a
further reduction of income and demand → net outward movement of enterprises and workers → fewer local taxes are collected → …
` Domestic CCC
Triple C Theory ` Regional and global CCC ` Economic benefits of cultural, institutional and technological
development of neighbouring and even far away countries ` Development in one area leads to development in another
area, which in turn contributes to the development of the original area
` Wealth tends to create wealth and poverty tends to accentuate poverty
` Transmission of regional and international growth is via trade, visible and invisible trade, capital flow (particularly FDI) and the transfer of technological, institutional and management knowledge: connectivity
Triple C Theory ` Three growth engines ` Domestic, Regional,
International
` EGOIN Theory focuses on the domestic dimension of economic development (domestic engine) while Triple C Theory highlights the regional and global dimensions of economic development.
Domestic Engine
Regional
International
Triple C Theory: Connectivity ` The higher the connectivity factor, the higher the level
of per capita income ` The bigger the ∆ in connectivity factor, the faster the
growth rate of per capita income
S Curve for Selected East Asian Economies Stage I
(Turtles)
Development Stages
Japa
n
Brun
ei
Hon
g K
ong
Mal
aysia
Thai
land
Chi
na
Sout
h K
orea
Taiw
an
Sing
apor
e
Indo
nesia
Phili
ppin
es
Nor
th K
orea
Log
(GD
P pe
r C
apita
) Stage II
(Horses) Stage III
(Elephants)
Three Stages of Growth ` Low-level Equilibrium Trap (Turtles) ` Superlative Growth Rate (Horses) ` High-level Equilibrium Trap (Elephants)
Empirical Evidence of S-Curve
Source: Phillips and Sul (2005), Economic Transition and Growth. Cowles Foundation, Yale University, Cowles Foundation Discussion Paper No. 1514.
Characteristics of the turtle, horse and elephant economies
Turtle Horse Elephant Income per capita Low and slowly
growing Medium and rapidly
growing High and slowly
growing Savings rate Low High Low Investment rate Low High Low Openness to trade and investment
Low High High
Demographic profile
Usually high population growth
Youthful, usually controlled population
growth
Aging population
Investment climate
Poor Conducive Diminishing returns and rising land and
labor costs Emphasis of society
Meeting basic needs and survival
Priority on economic achievements
High marginal propensity of leisure
Characteristics of the turtle, horse and elephant economies
Turtle Horse Elephant Entrepreneurship Poor, profusion of
market-distorting government interventions
Market-oriented and entrepreneur-
enabling
Market-oriented and entrepreneur-
enabling
Government Poor in both economic and
political leaderships
Good leader with emphasis on
economic development
Good leadership with emphasis on social
development
Human capital Underdeveloped Medium and rapidly improving
High
Fixed capital accumulation
Poor infrastructures and low level of
private-sector capital accumulation
Rapidly improving infrastructures and rapid increase in
private-sector capital accumulation
Infrastructures and private-sector capital
stock well built up
Natural resources Not well utilized or lacking
Well utilized Well utilized
Getting Old before Getting Rich
Singapore’s Economic Development
EGOIN Theory ` E: Market-oriented pro-business stance ` G: Good public governance, efficient bureaucracy,
prudent fiscal and monetary policies ` O: Investment in human capital ` EGO: Investment in social capital ` I: Investment in physical capital ` N: Capitalize on our geographical advantages
E: Market-oriented pro-business stance ` Minimal government
intervention in goods market and labour market
` Making it easy for business to set up, to exit, and operate
` Help in facilitating domestic and international trade
2015 Doing Business Report, World Bank ` Singapore is the world's easiest place to do business.
114
95
90
31
29
18
7
5
3
2
1
0 20 40 60 80 100 120
Indonesia
Philippines
China
France
Japan
Malaysia
United States
South Korea
Hong Kong
New Zealand
Singapore
Ease of Doing Business Ranking
How Singapore ranks on Doing Business ` Singapore is the world's easiest place to do business.
Days Required to Start a Business, 2014
Country Days
New Zealand 0.5 Australia 2.5
Hong Kong 2.5 Singapore 2.5
South Korea 4 Canada 5
Denmark 5.5 Malaysia 5.5
United States 5.6 Switzerland 10
Japan 10.7 Germany 14.5
China 31.4
Source: World Bank Databank
Index of Economic Freedom, 2015 ` Ranked 2nd freest economy
out of 178 economies by the Heritage Foundation. ` Business freedom ` Trade freedom ` Investment freedom ` Fiscal freedom ` Monetary freedom ` Government spending ` Financial freedom ` Freedom from corruption ` Property rights ` Labor freedom
Rank Country
1 Hong Kong
2 Singapore
3 New Zealand
4 Australia
5 Switzerland
6 Canada
7 Chile
8 Estonia
9 Ireland
10 Mauritius
G: Good public governance and efficient bureaucracy ` Global Competitiveness
Report 2014-2015 by World Economic Forum ranked Singapore 2nd out of 144 countries.
Rank Country
1 Switzerland
2 Singapore
3 United State
4 Finland
5 Germany
6 Japan
7 Hong Kong
8 Netherlands
9 United Kingdom
10 Sweden
Global Competitiveness Index (GCI) Indicator Rank/144
Institutions 3
Infrastructure 2
Macroeconomic environment 15
Health and primary education 3
Higher education and training 2
Goods market efficiency 1
Labor market efficiency 2
Financial market development 2
Technological readiness 7
Market size 31
Business sophistication 19
Innovation 9
G: Good public governance and efficient bureaucracy ` Corruption Perception
Index 2014 ranked Singapore 7th out of 175 countries.
Rank Country
1 Denmark
2 New Zealand
3 Finland
4 Sweden
5 Norway
5 Switzerland
7 Singapore
15 Japan
17 Hong Kong
17 United States
50 Malaysia
100 China
G: Prudent Fiscal policies ` Ensure a balanced budget over the medium-term (fiscal
sustainability) ` Government doesn’t borrow for spending purposes; returns
from investment can more than cover debt servicing cost
O: Investment in Human Capital ` Investment in education ` Compulsory primary education ` Highly subsidized
` Investment in adult training and retraining ` Skills Development Fund ` SkillsFuture
`
Life expectancy
at birth
Mean years
of schooling
Literacy Rate
1980 72.1 4.7 ..
1990 75.3 6.6 89.1
2000 78.0 8.6 92.5
2010 81.7 10.1 95.9
2014 82.5 10.6 96.7
EGO: Investment in Social Capital ` Promotion of ethnic harmony and religious respect ` Tripartism among unions, employers and government ` National Wages Council was set up in 1972 to formulate wage
guidelines to be in line with long-term economic growth, so that Singapore’s economic and social development would not be undermined.
` Strengthen rule of law and property protection
I: Investment in Physical Capital ` Gross capital formation (% of GDP) ` 21% (1965), 46%, (1982), 25% (2014)
` Encourage foreign direct investment (FDI) from multinational corporations (MNCs) via attractive tax incentives
Triple C Theory ` Expansion of invisible trade, i.e. tourism, consulting
services, banking services, education services, etc ` Conducive investment climate for MNCs ` Expanding network of Free Trade Agreements (FTAs) ` To reduce barriers to trade, e.g. tariff concessions, improve
market access ` 20 FTAs in force with 31 trading partners � ASEAN (1993), Japan (2002), Australia (2003), ASEAN-China (2005, goods;
2007, services), India (2005), China (2009), ASEAN-India (2009), etc
` More FTAs concluded or under going negotiation � Canada, Mexico, etc
Is Singapore an Elephant Economy?
7
8
9
10
11
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Log
Per C
apita
Rea
l GD
P
Singapore
United States
Chow test shows that there was a structural break around 1997, indicating that Singapore has began its transformation into an elephant economy since late 1990s.