1) Referring to information presented in the Page (1990) article and lecture, what factors contributed economic growth in Singapore between 1960 and 1990s?

i. Please discuss the following factors initial conditions in your answer:

a. What can we say about Singapore’s total factor productivity level in 1960 relative to that of other Asian countries?

Singapore’s TFP is high relative to other countries Singapore’s TFP level in 1960 below that of other Asian countries This means that the TFP gap for Singapore is larger than other Asian countries -> potential

for rapid growth spurt is larger due to the advantage of backwardness (able to absorb foreign technology)

This TFP growth has a direct effect of increasing output per worker, and also an indirect effect which renews Singapore’s potential to grow through capital accumulation

‘Starting productivity levels’ -> Singapore has high TFP level relative to other Asian countries TFP declining from 1960 –> economic growth not due to this

b. Its Capital stock in 1960? Its Steady State Capital Stock in 1960?

Investment rate was high This would mean that capital stock was far from steady stage -> this set the stage for large

short-run growth effects (because the growth rate achieve through convergence to a steady state depends on initial distance from steady state)

c. Its Human capital stock in 1960? Its Steady State Human Capital Stock in 1960?

Human capital stock (average education) was low Human capital flow (enrolment rate) was high This would means that current human capital was far from steady state -> this set the stage

for large short-run growth effects

Figure 4a and 4b

ii. Imagine you are an economic analyst in 1960. How could you use the above information about initial conditions to predict Singapore’s economic growth rate in subsequent decades?

Combination of productivity-based growth and accumulation-based growth Singapore’s economic growth would see a rapid increase

Far from steady state -> rapid growth

iii. How did Singapore’s steady state physical and human capital stocks change between 1960 and 1990? Describe some key factors/policies that led to increases in Singapore’s steady state output over this period.

Average investment rate was high in the period from 1960 to 1985 & TFP was also growing due to the TFP gap -> pushes the steady state out further -> set the stage for accumulation-based growth

High investment rate could be because of an increase in savings rate due to the increase in CPF contributions

Initial savings rate was low If increase from low starting point -> allows for rapid growth through capital accumulation

TFP not much impact because the rest were growing fast

Look at TFP relative to GDP

If TFP is higher relative to your GDP -> it suggests economy is below steady state

2) Prescott argues that change in total factor productivity is the ultimate cause of economic growth. Explain his argument and describe some of the evidence he presents to support it.

The Page article shows that the bulk of East Asian growth from 1960 to 1990 is attributable to factor accumulation.

Does Page’s evidence from East Asia contradict Prescott’s thesis? Why or why not?

Prescott

Increases in savings rate are unable to account for the growth spurts in low-middle income economies (10-fold increase in savings rate -> growth per annum is only 1.1% over 50 years)

Adding on increases in human capital is also unable to do so (10-fold increase in both savings rate and human capital -> growth per annum is only 3.1% over 50 years)

If such factor accumulation is unable to explain the growth spurts, then TFP growth should be the ultimate cause of economic growth

He argues that increases in TFP has a direct effect of increasing output per worker, and also an indirect effect that operates through capital accumulation.

This increase in TFP shifts the economy farther and farther from steady state -> and subsequently, the initial growth enjoyed creates a huge surplus in income levels -> this allows the economy to fund their primary needs first and then makes increases in savings rate feasible

He states that changes in TFP depends upon the strength of the resistance to the adoption of new technologies and to the efficient use of currently operating technologies, which depends upon the policy arrangement a society employs

Textile industry (differences in industry total productivity not due to changes in stock of useable knowledge): Japan’s labor productivity increased more than that of India’s in the same time period -> textile workers in Japan were illiterate girls while workers in India were adult males who are seasoned workers in that industry -> India workers thus have greater incentive to resists adoption of practices that would increase labor productivity and reduce employment given the perceived inelastic demand for their product

Prescott: You need technological progress to push economy to another steady state, you need increases in FOP after that to reach the new steady state.

Page vs Prescott

Difference in time frame considered: Prescott from 1800s, Page from 1960 Productivity-based growth before the 1960s has allowed for accumulation-based growth

after the 1960s (technological progress in Singapore was not in the period Page was looking at)

Example: Singapore’s factor accumulation accounted for an average of 8% growth per annum from 1960 to 1989 -> this is impossible unless Singapore is unusually technologically advanced circa 1960 -> places it far away from the steady state -> allowing for growth spurts via capital accumulation

After ww2, disruption of capital stock -> any increases in capital stock will cause a rapid increase in growth

HK and Singapore: sg follow page, hk follow Prescott -> no contradiction because different path to the same economic growth -> future: sg needs improvement in productivity, hk

Make assumptions before answering