ECONOMETRIC MODELLING OF SINGAPORE'S EXPORT SECTOR : THEORETICAL AND EMPIRICAL ISSUES

Abstract

Singapore is traditionally regarded as a small open economy which depends heavily on trading with the rest of the world for survival. Although Singapore's volume of trade is larger than most developing countries, the assumption that she is a small open economy makes Singapore a price taker in the world market. This thesis attempts to quantify Singapore's export demand and supply sectors using two approaches. The first is the conventional approach which has been traditionally used to arrive at elasticity estimates. The second is known as the small country approach which is a relatively recent proposition for modelling the price taking behaviour of small open economies. The two approaches are also utilised to test for the small country hypothesis, which is a small economy with a infinitely elastic export demand curve. Chapter 1 explains the microeconomic application of market structure behaviour into trade theory. It also covers the literature development on this topic. Chapter 2 explores the model specification and framework. Subsequently, the data would be tested for unit root and co integration in Chapter 3. The empirical issue of price interdependence will also be taken up in the same chapter. In Chapter 4 the estimated results using the error correction model will be discussed. Singapore's aggregate export demand and supply functions will be reviewed, together with disaggregated exports to the OECD nations of Japan, United States and several European countries. In Chapter 5, we will discuss the small country model using the Singapore-Japan trade as a background. In addition, some aspects of non-price competition and product differentiation are also discussed as contrasts to the small country model. Finally, in Chapter 6, we will conclude the findings of this thesis.