Markups, returns to scale, and productivity : a case study of Singapore's manufacturing sector

The results of this paper challenge the conventional wisdom in the literature that productivity plays no role in the economic development of Singapore. Properly accounting for market power and returns to scale technology, the estimated average productivity growth is twice as large as the conventional total factor productivity (TFP) measures. Using a standard growth accounting (production function) technique, Young (1992, 1995) found no sign of TFP growth in the aggregate economy and the manufacturing sector of Singapore. Based on Young's results, Krugman (1994) claimed that there was no East Asia miracle as all the economic growth in Singapore could be attributed to its capital accumulation in the past three decades. Citing evidence on nondiminishing market rates of return to capital investment in Singapore during the period of fast growth as an indication of high productivity growth, Hsieh (1999) challenged Young's findings using the dual approach. But all of these papers maintained the assumptions of perfect competition and constant returns to scale and used only aggregate macro-level data. Kee uses industry level data and focuses on Singapore's manufacturing sector. She develops an empirical methodology to estimate industry productivity growth in the presence of market power and nonconstant returns to scale. The estimation of industry markups and returns to scale in this paper combines both the production function (primal) and the cost function (dual) approaches while controlling for input endogeneity and selection bias. The results of a fixed effect panel regression show that all industries in the manufacturing sector violate at least one of the two assumptions. Relaxing the assumptions leads to an estimated productivity growth that is on average twice as large as the conventional TFP calculation. Kee concludes that productivity growth plays a nontrivial role in the manufacturing sector.Environmental Economics&Policies,Banks&Banking Reform,Labor Policies,Economic Theory&Research,Public Health Promotion,Economic Theory&Research,Economic Growth,Environmental Economics&Policies,Banks&Banking Reform,Achieving Shared Growth

Productivity in endowments : sectoral evidence for Hong Kong's aggregate growth

The author provides sectoral evidence that sheds new light on the current debate regarding the sources of growth of the East Asian miracle. The author tests both the productivity-driven and endowment-driven hypotheses using Hong Kong's sectoral data. The results show that most of the growth in the services sector is driven by the rapidly accumulating capital endowments, and not by productivity growth. In addition, productivity growth in the manufacturing sector is also unimpressive. The manufacturing sector is more labor intensive and its growth is hindered by the reallocation of resources into the services sector as a result of the growth of capital endowments and imports. Overall, sectoral evidence supports the endowment-driven hypothesis for Hong Kong's aggregate growth.Water and Industry,Banks&Banking Reform,Environmental Economics&Policies,Economic Theory&Research,Industrial Management,Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Economic Growth,Industrial Management

Export variety and country productivity

The authors study the link between export product variety and country productivity based on data from 34 industrial and developing countries, from 1982 to 1997. They measure export product variety by the share of U.S. imports on the set of goods exported by each sampled country relative to the world. It is a theoretically sound index which is consistent with within-country GDP maximization, as well as cross-country comparison. They construct country productivity based on relative endowments and product variety. Increases in output product variety improve country productivity as the new mix of output may better use resources of the economy, and improve allocation efficiency. Such effects depend on the elasticity of substitution in production between the different varieties. The more different the varieties are in terms of production, the more efficient it is to use the endowments of the economy when a new variety is available, which leads to productivity gains. In addition, as suggested in the literature, export product variety depends on trade costs, such as tariffs, distance, and transport costs. Such trade cost variables are used as instruments to help the authors identify the effects of export variety on country productivity. Empirical evidence supports their hypothesis. Overall, while export variety accounts for only 2 percent of cross-country productivity differences, it explains 13 percent of within-country productivity growth. A 10 percent increase in the export variety of all industries leads to a 1.3 percent increase in country productivity, while a 10 percentage point increase in tariffs facing an exporting country leads to a 2 percent fall in country productivity.Municipal Financial Management,Environmental Economics&Policies,Banks&Banking Reform,Economic Theory&Research,Labor Policies,Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Municipal Financial Management,Poverty and Trade

On the measurement of product variety in trade

Product variety plays an important role in the theoretical work on monopolistic competition and trade, and recent empirical work has begun to quantify this for aggregate and disaggregate import demands. The authors discuss the measurement of product variety in trade, using a broad cross-section of industrial and developing countries and disaggregating across sectors. The authors calculate the export variety of countries in their sales to the United States, and relate the export variety indexes to country productivities. They confirm that countries with greater product variety in exports also have higher productivity. This may be due to their development of and access to these products.Economic Theory&Research,Environmental Economics&Policies,Labor Policies,Banks&Banking Reform,Biodiversity,Economic Theory&Research,Environmental Economics&Policies,Biodiversity,Poverty and Trade,Banks&Banking Reform

Firm Level Heterogeneous Productivity and Demand Shocks: Evidence from Bangladesh

This paper looks at the predictions of a standard heterogeneous firm model regarding the exports of firms across markets in response to a particular trade policy "experiment" and compares these predictions to the data. A unique feature of our data is that it has information on the exports of the same firm to different markets which allows us to look for a new set of predictions of such models. We argue that while certain predictions seem consistent with the data, others are not. We then describe the patterns found in the data and argue that firm and market specific demand shocks help explain a number of these anomalies. These parsimoniously capture factors, like business contacts or networks, or even fashion shocks, that make buyers more attracted to one firm rather than another in a particular market.

Imports, entry, and competition law as market disciplines

Since the early 1990s numerous countries have adopted or strengthened competition legislation. Kee and Hoekman investigate the impact of competition law on industry markups over time and across a large number of countries. They find both domestic and foreign competition to be major sources of market discipline in concentrated markets, but that the direct effect of competition law is insignificant. However, once allowance is made for the endogeneity of both domestic competiton (number of firms) and the adoption of a competition law, the authors find that competition laws have an indirect effect on equilibrium markups by promoting a larger number of domestic firms.Water and Industry,Economic Theory&Research,Labor Policies,Environmental Economics&Policies,ICT Policy and Strategies,Environmental Economics&Policies,Economic Theory&Research,Water and Industry,ICT Policy and Strategies,Markets and Market Access

Trade, capital accumulation, and structural unemployment : An empirical study of the Singapore economy

The past three and a half decades witnessed a distinctly declining trend in Singapore's unemployment rate, which dropped from an average annual rate of 7.85 percent in 1966-70 to 2.74 percent in 1991-2000. The authors seek to identify and empirically examine the factors that have influenced Singapore's unemployment rate in an environment of low and stable inflation. They incorporate a union bargaining framework into a standard-factors trade model, in which an increase in the relative price or capital stock in the export sector raises the demand wage that firms can afford to pay relative to workers'fall-back income, and consequently lowers equilibrium unemployment. The magnitude of the effects depends on the fall-back income, the weight unions attach to employment, and the elasticity of labor demand, which the authors estimate using data on Singapore. The results show that labor unions in Singapore care more about employment than wages. Together with a small fall-back income and elastic labor demand, the authors show that given the same percentage change in relative export prices and capital accumulation in the export sector, the effect on unemployment is larger for the former. However, the empirical importance of capital accumulation in the export sector dominates increases in relative export prices in reducing unemployment since the manufacturing sector experienced a tremendous increase in capital inputs throughout the sample period, whereas the relative price of exports experienced a far smaller increase and only in the early part of the sample period. The authors conclude that through a very open trading regime, the tremendous increase in capital stock of the exporting sector has been the main reason behind Singapore's declining unemployment rate.Banks&Banking Reform,Environmental Economics&Policies,Labor Policies,Economic Theory&Research,Labor Markets,Economic Theory&Research,Environmental Economics&Policies,Labor Markets,Banks&Banking Reform,Economic Growth

Export Variety and Country Productivity

This paper provides evidence on monopolistic competition models with endogenous technology by studying the effects of sectoral export variety on country productivity. The effects are estimated in a translog GDP function system based on data for 34 countries from 1982 to 1997. Country productivity is constructed and export variety is shown to be significant. Instruments such as tariffs, transport costs, and distance are shown to affect country productivity through export variety, and only through this channel. Overall, while export variety accounts for only 2% of cross-country productivity differences, it explains 13% of within-country productivity growth. A 10% increase in the export variety of all industries leads to a 1.3% increase in country productivity, while a 10 percentage point increase in tariffs facing an exporting country leads to a 2% fall in country productivity.