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Saving and investment: the economic development of Singapore 1965-99

Hopf, Gregor (2004) Saving and investment: the economic development of Singapore 1965-99. PhD thesis, London School of Economics and Political Science.

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The first chapter of the dissertation removes Singapore's saving performance from its pedestal as an outlier in economic history, with the reputation of being hardly transferable and possibly not even desirable. Instead, the results of the benchmarking exercise clearly show the transferability of at least the saving aspects of Singapore's economic history. Moreover, the particular econometric approach applied highlights those circumstances, which are not directly related to saving policies but must be taken into consideration if transferability is assessed, particularly the demographic structure and external position. The exercise shows that Singapore's saving performance between 1965-99 was far from extraordinary once the country's circumstances are controlled for, even though a mere comparison of averages of saving rates across countries would have us believe differently. Given Singapore's purely non-policy environment, it could have been expected of the country to achieve at least world average saving levels, substantially higher than its savings at time of independence. Above world average levels could have been expected if we also take into consideration the country's very successful external situation. Finally, if we also allow for potential peer-group mechanisms by placing Singapore within a group of successful Asian countries, the average benchmark saving ratio comes very close to the country's actual saving rate. What is indeed extraordinary about Singapore's saving performance, is not the high saving rates in the late 1980s and 1990s, which usually attract the most attention, but rather the speed of transformation of the country's saving behaviour in the first half of the period, when Singapore was able to overcome its initial low saving performance much faster and much more strongly than could have been expected given her circumstances. The key to understanding Singapore's saving behaviour must he in the turnaround achieved during the first decade of the country's independence. Therefore, looking merely at the country's more recent saving performance will not be able to answer how Singapore was able to achieve its world-record saving ratios. Chapter Two investigates the country's saving ratios in a time-series regression analysis. It is able to show that strong income developments are the main force behind Singapore's saving behaviour, while the demographic transition seems to have been the initial catalyst and also the enabling factor for the important compulsory saving scheme. However, the exercise also shows that the different subaggregates of gross national saving have very different driving factors and that contrary to parts of the past literature all main influences, which theory generally suggests, can be shown to have had a significant impact on the country's savings. Income, particularly its dynamic, i.e. transitory, component is the single strongest factor followed by the CPF, whose dynamic effects were offset by lower voluntary and public savings but its long-term effects more than compensated. Falling dependency is shown to have had opposite effects, positively adding to voluntary savings particularly during the early years but reducing public savings for the whole period. The lowering of borrowing constraints over time has led to more consumption and thus lower savings among the private sector, which was however compensated by a positive impact on public savings. Full Ricardian Equivalence has not been present, so that public saving has had a positive net effect on the country's gross national savings. Since voluntary savings was the driving force behind the early saving transition and voluntary saving in the early years was itself largely driven by the rising labour force ratio, the favourable demographic environment must be considered as having been central to Singapore's saving 'take-off'. Moreover, the fact that the positive effect of the CPF was largely due to positive net-contributions to the fund, shows how important this demographic change was even outside of voluntary savings. Singapore used the chance to exploit this demographic dividend very well, by both kick-starting a changed voluntary saving pattern and by using the demographic window for the creation of a CPF 'hump-saving'.

Item Type: Thesis (PhD)
Additional Information: © 2004 Gregor Hopf
Library of Congress subject classification: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
Sets: Departments > Economic History
Supervisor: Crafts, Nicholas

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