Efficiency of investments in Asian economies: Has Singapore over-invested

Abstract

This paper compares the investment efficiency in Singapore with the rest of Asia to determine whether Singapore's capital utilisation has been effective vis-à-vis other Asian economies. In particular, it analyses the key investment differences between Singapore, Hong Kong and Taiwan, the three NIEs with comparable data breakdown. While the government facilitates investment through infrastructure development, market-oriented domestic enterprises and foreign companies make much of the investment in Singapore. Singapore's returns to capital investment are not inferior to other Asian economies. In terms of total factor productivity (TFP), the findings vary according to the computation method used. But even if the traditional approach adopted by Alwyn Young is used, more recent data suggest that while Singapore's TFP growth had been negligible compared to Hong Kong between 1971 and 1986, it has improved significantly since then. Singapore's earlier phase of rapid capital deepening with associated low TFP growth is giving way to more sustainable and perceptible simultaneous growth in capital intensity and TFP. Singapore's experience accords with that of the U.S. and Japan, which also recorded low TFP growth in the early stages of their economic development. © 2002 Elsevier Science Inc. All rights reserved.