Kong Weng Ho

Autarkic Indeterminacy and Trade Determinacy

We extend the model of Nishimura and Shimomura (2002) to consider a two-country framework where under autarky indeterminacy arises in one country but determinacy in the other, and show that indeterminacy could be eliminated when trade takes place between the two.

The Changing Pattern of Production Fragmentation in Singapore and Its Economic Consequences

The slicing up of the value chain, to use the term coined by Krugman (1995), or the phenomenon of production fragmentation, the term preferred by Jones and Kierzkowski (1990, 2001a, 2001b), is a major factor behind the growth of world trade in the postwar era. Because of the importance of intermediates or “middle products” in the production of final goods whose production characteristics can be differentiated by varying factor intensities, it is economically attractive for firms to base different production blocks in different countries based upon their relative factor endowments. Consequently, in the absence of significant trade barriers, relatively labor-abundant countries produce labor-intensive parts and components, while relatively capital-abundant countries concentrate on producing capital-intensive items. Such vertical fragmentation of the production process based upon countries’ comparative advantage, however, requires the crucial function of service links (see Jones and Kierzkowski 1990). Determining whether firms choose to outsource part of the value chain or to engage in the whole vertically integrated process within national borders requires a comparison of the total cost involved in the two modes of organization. Crucially, the lower marginal cost of production made possible by taking advantage of international specialization must be balanced off the higher fixed cost of providing service links to coordinate activities across nations.

Innovation, Imitation and Entrepreneurship

This paper analyzes the gradual shift in the technological paradigm of an economy as it approaches the world technology frontier. The model developed in this paper consists of firms which employ skilled workers as an important input in technological advancement, but the novel feature here is the entrepreneur, who is the brain of technological progress. The entrepreneur has to decide to undertake either imitative or innovative activities, of which decision both affects and is affected by the countrys distance to frontier. Specifically, the entrepreneur needs to have a minimum ability threshold level in order to carry out innovation. This endogenous threshold level falls as the economy moves closer to the technological frontier, enabling more entrepreneurs to be engaged in an innovation-based strategy, and consequently, moving the economy from a technological structure that is based on imitation of foreign technologies to one where domestic innovation dominates. The transitional dynamics of the model shows that there exists a steady state distance from the world frontier that countries will eventually converge to. We also find that it is possible for countries under certain conditions, to be trapped in a regime carrying out only imitation of world technologies.

Nonmonotonic relationship between human capital and unemployment: an exploratory study with empirical evidence on Singapore

We examine empirically the role of human capital, together with global and domestic technologies, in the evolution of unemployment in Singapore. Our results show a threshold level of human capital, below (above) which increases (decreases) in human capital will reduce (raise) unemployment. This nonmonotonic relationship is caused by a greater substitution from labour toward technology feasible at higher levels of human capital.

Equilibrium Unemployment and Endogenous Public Sector Employment

This paper develops a model of the equilibrium rate of unemployment with an endogenous share of public sector employment. We show how various macroeconomic shocks drive up the equilibrium rate of unemployment, accompanied by predictable variations in the public sector share of employment. In particular, under the empirically plausible assumptions that the public sector is relatively labor-intensive and the elasticity of substitution between capital and labor is less than unity, public sector employment is shown to be countercyclical. When the equilibrium unemployment rate rises over a prolonged time period, the public sector share of employment also rises.

Growth Accounting for a Follower-Economy in a World of Ideas: The Example of Singapore

In this paper, we take another approach to accounting for the sources of Singapore’s economic growth by being explicit about the channels through which Singapore, as a technological follower, benefits from international R&D spillovers. Taking into account the channels through which technology developed in the G5 countries diffuses to technological followers, we show that 57.5 percent of Singapore’s real GDP per worker growth rate over the 1970-2002 period is due to multifactor productivity growth. In particular, about 52 percent of the growth is accounted for by an increase in the effectiveness of accessing ideas developed by the technology leaders through improvement in our educational quality and increase in machinery imports and foreign direct investment from the G5 countries. We also find that capital accumulation that takes the form of imports of machinery as well as foreign direct investment from the G5 countries enhances the effectiveness of technology transfer thus raising the rate of return to capital. Compared to the rate of return to capital inferred from the traditional Solow growth model with purely exogenous technological progress of 10.8 percent, taking into account the technology transfer channel raises the implied rate of return to 13 percent.

Arms Length Transactions vs. Affiliates: A Study of Two Electronic Component Firms in Singapore

Key to understanding Singapore’s outward-looking development experience is the question of why international production fragmentation there has taken the form of subsidiaries set up to produce a part of the value chain rather than of purchases made from contract manufacturers in arms-length transactions.Singapore is of interest in this regard because, whereas it once served largely as a production manufacturing base for many multinational corporation (MNC) subsidiaries that set up factories there to produce their own parts and components, in the 1990s the number of local contract manufacturers, which were set up to serve MNCs, began to grow. In our interviews with two firms—one a major local contract manufacturer and the other an MNC subsidiary—our aim was to gain an understanding of how firms decide whether to rely on arms-length transactions vs. affiliates for the supply of parts and components.

Productivity Growth and Public Sector Employment

Our model endogenizes the share of public sector employment in a neoclassical growth model. Under the assumptions that public sector production is labor intensive and the elasticity of substitution between capital and labor is less than one, the public share of employment is shown to decline with a rise in capital per effective worker. Our theory predicts that periods of high productivity growth are associated with a rising trend of the public share of employment. This prediction conforms well with U.S. experience from 1950–1995.

Macroeconomic shocks and the endogenous response of the stock market and real interest rates in a neoclassical general equilibrium model

Abstract This paper develops a neoclassical general equilibrium model to study the endogenous response of the stock market and the term structure of real interest rates in the face of a number of macroeconomic shocks believed to be important in the 1980s. An exogenous decline in savings, a debt-financed fiscal expansion, an increase in investment subsidy and an anticipation of higher productivity growth are found to have contrasting effects on the value of the stock market and the behaviour of the term structure of real interest rates in the model closed economy.