Journal of Business & Financial Affairs

Economic Growth Analysis of Singapore: Simultaneous Equations Model

Abstract

Mahmoud Mourad and Hussein Trabulsi

This paper has carried out an in-depth study based on the simultaneous equations model by estimating three structural equations associated to the three components of the Real Gross Domestic Product per Capita (gdp) in Singapore over the period (1991-2017), that is, the Real Gross Domestic Saving per Capita (gds), the Household Final Consumption Expenditure per Capita (hfce), the Government Final Consumption Expenditure per Capita (gfce). The primary nominal data were divided by the product of the consumer price index and the annual population for leading to real data per capita taking into account both inflation and population. The fourth equation represented the income identity expressed by equality (gdp_t=gds_t+hfce_t+gfce_t). Seven instruments variables are used to accomplish the study: a constant, three predetermined variables characterized by gds_t-1, hfcd_t-1 and gfce_t-1, three exogenous variables as real interest rate (rir_t), the real foreign direct investment per capita (fdi_t) and the real money supply per capita (m1_t). The study shows that the three structural equations are over-identified and by consequence; each equation is estimated using the following methods: Two-Stage Least Square estimator (2SLS), Heteroscedastic Two-Stage Least Squares (H2SLS), Limited Information Maximum Likelihood (LIML) and the Three-Stage Least Squares (3SLS) which is often more efficient than other methods and promoted by Hausman test. Finally, the performance of the estimated equations is measured comparing the fitted values with the observed values by the Mean Relative Error (MRE). The findings have shown that the MRE values are 2.46%, 1.37%, 4.9% and 1.37% for the variables gds_t, hfce_t gfce_t and gdp_t respectively.