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

` Pursue growth and enhance competitiveness

Declining Tax Rates

0

10

20

30

40

50

60

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Corporate Income Tax Rates (%) Top Personal Income Tax Rates (%)

Start of GST at 3%

GST at 4%

GST at 5%

GST at 7%

Cut of CIT to 33%

Internationally competitive corporate income tax rate (2014)

12.5

16.5

17

17

20

21

23.5

23.68

24.2

25

25

25

29.65

30

30

33.06

33.33

34.61

40

0 5 10 15 20 25 30 35 40 45

Ireland

HK

Singapore

Taiwan

Thailand

UK

Denmark

Global Avg

Korea

China

Indonesia

Malaysia

Germany

Australia

Philippines

Japan

France

India

USA

Source: KPMG

G:Prudent Monetary Policy ` Exchange-rate centered monetary policy ` BBC approach (Basket, Band, Crawl) ` Promoting price stability for sustained economic growth ` Preserving the purchasing power of S$

Low CPI Inflation

Source: IMF, WEO Apr 2015

Healthy Balance of Payments

BOP 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2014

Current Account Balance as % of GDP

-5 -30 -12 -13 0 8 16 11 22 24 20

Overall Balance as % of GDP

0 10 7 5 7 14 10 7 10 18 2

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)

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

N: Capitalize on our geographical advantages ` Capitalize on our

geographical advantages to become: ` Shipping hub ` Aviation hub ` Logistic hub

` Export of services to regional countries ` Tourism centre ` Healthcare centre ` Education centre

Triple C: Export-oriented industrialization ` Pursue export-oriented

industrializing strategy ` Domestic Export as % of GDP

` 1970 31% ` 1980 100% ` 1990 89% ` 2000 82% ` 2014 70%

` 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.

Singapore’s savings rate remained high

-10

0

10

20

30

40

50

60

70

80

90

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Gross Domestic Savings (current prices, billion S$)

0

10

20

30

40

50

60

1965 1970 1975 1980 1985 1990 1995 2000

Gross Domestic Savings (% of GDP)

Gross Fixed Capital Formation has fallen significantly

0

10

20

30

40

50

60

1965 1970 1975 1980 1985 1990 1995 2000 2005

Gross Fixed Capital Formation (1995 prices, billion S$)

15

20

25

30

35

40

45

50

1965 1970 1975 1980 1985 1990 1995 2000

Gross Fixed Capital Formation (% of GDP)

Slowing rate of growth of capital stock and an aging population

8

9

10

11

12

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

log of Real Capital Stock per Capita

2

3

4

5

6

7

8

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Population Age 65 & Above (% of Total)

Singapore as an incipient elephant ` Singapore is an incipient elephant ` Experience of Japan shows that transformation from a

horse economy to an elephant economy is very gradual; in the case of Japan, it spanned across a period of 20 years.

` Pushing the envelop of growth ` O is the most important growth driver of high-income

countries; G is the most important growth driver of the middle-income countries

` Diminishing returns from knowledge- and technological-transfer; has to increasingly reply on indigenous innovation for growth