SER2 - SINGAPORE'S COST COMPETITIVENESS IN THE REGION: A...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
SINGAPORE'S COST COMPETITIVENESS IN THE REGION: A TECHNICAL NOTE ON RULC Tilak Abeysinghe* and Lee Hwee Chen *Department of Economics National University of Singapore 10 Kent Ridge Crescent Singapore 119260 Email: TilakAbey@nus.edu.sg Fax: 775 2646 May 1999 Revised, July 1999 ABSTRACT A detailed examination of Singapore's relative unit labor cost (RULC) against that of eight countries in the region shows that Singapore's apparent loss of competitiveness is not due to escalating labor costs but mainly due to the appreciating dollar against the currencies in the region. The appreciation of the Singapore dollar, however, does not necessarily mean loss of competitiveness. Therefore, a more meaningful measure of RULC (also relative unit business cost) requires to hold the exchange rates constant. A comparison of the standard RULC measure with a constant-exchange-rate RULC shows a striking difference between the two. ___________________ This is a substantially revised version of a paper presented by the authors at the Econometric Studies Unit Annual Conference held on March 4, 1999 at the National University of Singapore. A detailed account of some parts of the paper can be found in Lee (1999). We would like to thank Tan Lin Yeok and an anonymous referee for their valuable comments on the paper.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Introduction Although the cost competitiveness of a country changes slowly over time as factor prices change, the Asian crisis is likely to have changed the relative cost structure of the Asian countries drastically. Until new data become available it is difficult to predict who will emerge as the dominant players. A comprehensive evaluation of the relative cost structure of the countries in the region is going to be of immense value to policy makers and international investors. Obviously investment decisions depend not only on cost considerations but also on a number of other factors such as real exchange rate, terms of trade, capital controls, benefits in kind, and a host of other intangibles. In this exercise we concentrate only on the cost aspect. Because of the paucity of data, quite often, cost comparisons are done on the basis labor costs. Such comparisons are unfortunately marred by the exchange rate movements. In this exercise we argue that it is important to separate exchange rate effects from labor cost so that countries could assess whether they are losing out in terms labor costs. We carry out the exercise by assessing Singapore’s labor cost competitiveness against eight countries, NIE-3 (Hong Kong, Taiwan and South Korea), ASEAN-4 (Malaysia, Thailand, Indonesia, Philippines) and China. This type of disaggragated comparison is more informative compared to examining the trend of a single aggregate index of relative unit labor cost. We are in particular interested in the level of each country's unit labor cost, their relative trends and the role of exchange rate. Finally we propose an aggregate measure of RULC that can separate out the exchange rate effect.
Background image of page 2
3 2. Cost Determinants of Foreign Direct Investment (FDI) Table 1 shows the FDI inflow to Singapore and the region over the 1993-97 period.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/29/2011 for the course ECON 201 taught by Professor K during the Spring '08 term at Susquehanna.

Page1 / 21

SER2 - SINGAPORE'S COST COMPETITIVENESS IN THE REGION: A...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online