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 Singapores total factor productivity level in 1960
relative to that of other Asian countries?

Singapores TFP is high relative to other countries

Singapores 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 Singapores 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 Singapores economic
growth rate in subsequent decades?

Combination of productivity-based growth and accumulation-based growth

Singapores economic growth would see a rapid increase

Far from steady state -> rapid growth

iii.
How did Singapores steady state physical and human capital stocks
change between 1960 and 1990? Describe some key factors/policies that led to
increases in Singapores 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 Pages evidence from East Asia contradict Prescotts 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): Japans labor productivity
increased more than that of Indias 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 accumulationbased growth after the 1960s (technological progress in Singapore was not
in the period Page was looking at)
Example: Singapores 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