Growth and the current account: Malaysia and Singapore

Ignacio Mauleón () and Raul Larrion

International Advances in Economic Research, 2003, vol. 9, issue 2, 140-151

Abstract: A foreign trade model is estimated for two South East Asian countries, selected because they represent two extremes as far as the current account balance is concerned—Malaysia, deficit, Singapore, surplus. The specification highlights, (a) the simultaneous interdependence of exports and import flows—a result of what Krugman [1995] denotes as the slicing up of the production process—and, (b) the impact of investment on imports as a result of productivity shocks on the current account. The estimation results point to the instability of the market for foreign exchange. Using an intertemporal framework, a methodology to derive the external long run equilibrium is applied to the estimated model. The implied constraint on domestic growth turns out to be mild. Copyright International Atlantic Economic Society 2003

Date: 2003
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DOI: 10.1007/BF02295715

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