Trinity Development Theory

To explain:
Why some countries develop, while some do not?
What are the key ingredients of growth of the Singapore
economy?
Why some countries are able to have superlative economic
growth rates and are able to catch up with the already
developed industrial nations?
Why was Singapore able to growth at superlative growth rates
of around 10% in the late 1960s, 1970s, 1980s and early 1990s?
Why do affluent industrial nations exhibit slow growth rates?
Is Singapores potential growth rate slowing down? What can
we do?

Trinity Development Theory

(1) EGOIN Theory
(2) Triple C Theory
(3) S Curve Theory

EGOIN Theory
E = Entrepreneurship
G = Government (and the bureaucracy)

Social capital
(active agents)

O = Ordinary Labour (human capital)

I = Investment (physical capital)
N = Natural Resources (natural capital)

(passive agents)

EGOIN Theory
The higher the per capita EGOIN, the higher the level of
per capita income
The bigger the per capita EGOIN, the faster the growth
rate of per capita income

EGOIN Theory
Multi-determinant theory
EGOIN are the inputs, GDP is the output
EGO are active factors, most critical
G must take on an enabling, supporting and facilitating role for
E and O to function property
Aptitude and attitude of government and people

I and N are passive factors

Triple C Theory
Gunnar Myrdal: Circular Cumulative Causation Theory
A change in one form of an institution will lead to successive changes
in other institutions. These changes continue in a cycle and are
cumulative in that they persist in each round.
E.g. : Closing down certain lines of production in a community
reduction of employment, income and demand
affect other sectors of the economy through the multiplier effect
depressing effect on new investments, which in turn causes a
further reduction of income and demand
net outward movement of enterprises and workers
fewer local taxes are collected

Domestic CCC

Triple C Theory
Regional and global CCC
Economic benefits of cultural, institutional and technological
development of neighbouring and even far away countries
Development in one area leads to development in another
area, which in turn contributes to the development of the
original area
Wealth tends to create wealth and poverty tends to
accentuate poverty
Transmission of regional and international growth is via trade,
visible and invisible trade, capital flow (particularly FDI) and the
transfer of technological, institutional and management
knowledge: connectivity

Triple C Theory
Three growth engines
International

Regional

Domestic
Engine

Domestic, Regional,
International

EGOIN Theory focuses

on the domestic
dimension of economic
development (domestic
engine) while Triple C
Theory highlights the
regional and global
dimensions of economic
development.

Triple C Theory: Connectivity

The higher the connectivity factor, the higher the level
of per capita income
The bigger the in connectivity factor, the faster the
growth rate of per capita income

Development Stages

Japan

Stage II
(Horses)

Brunei

Singapore

Hong Kong

South Korea

Taiwan

Malaysia

Stage I
(Turtles)

China

Thailand

Indonesia

Philippines

North Korea

Log (GDP per Capita)

S Curve for Selected East Asian Economies

Stage III
(Elephants)

Three Stages of Growth

Low-level Equilibrium Trap (Turtles)
Superlative Growth Rate (Horses)
High-level Equilibrium Trap (Elephants)

Empirical Evidence of S-Curve

Source: Phillips and Sul (2005), Economic Transition and Growth. Cowles Foundation,
Yale University, Cowles Foundation Discussion Paper No. 1514.

Characteristics of the turtle, horse and

elephant economies
Income per capita
Savings rate
Investment rate
Openness to trade
and investment
Demographic
profile
Investment
climate
Emphasis of
society

Turtle
Low and slowly
growing
Low
Low
Low
Usually high
population growth

Horse
Medium and rapidly
growing
High
High
High

Elephant
High and slowly
growing
Low
Low
High

Youthful, usually
Aging population
controlled population
growth
Poor
Conducive
Diminishing returns
and rising land and
labor costs
Meeting basic needs Priority on economic
High marginal
and survival
achievements
propensity of leisure

Characteristics of the turtle, horse and

elephant economies
Entrepreneurship

Government

Turtle
Poor, profusion of
market-distorting
government
interventions
Poor in both
economic and
political leaderships

Horse
Market-oriented and
entrepreneurenabling

Elephant
Market-oriented and
entrepreneurenabling

Good leader with

Good leadership with
emphasis on
emphasis on social
economic
development
development
Human capital
Underdeveloped
Medium and rapidly
High
improving
Fixed capital
Poor infrastructures
Rapidly improving
Infrastructures and
accumulation
and low level of
infrastructures and private-sector capital
private-sector capital
rapid increase in
stock well built up
accumulation
private-sector capital
accumulation
Natural resources Not well utilized or
Well utilized
Well utilized
lacking

Getting Old before Getting Rich

Singapores Economic
Development

EGOIN Theory
E:
G:

Market-oriented pro-business stance

Good public governance, efficient bureaucracy,
prudent fiscal and monetary policies
O:
Investment in human capital
EGO: Investment in social capital
I:
Investment in physical capital
N:
Capitalize on our geographical advantages

E: Market-oriented pro-business stance

Minimal government
intervention in goods market
and labour market
Making it easy for business to
set up, to exit, and operate
Help in facilitating domestic
and international trade

2015 Doing Business Report, World Bank

Singapore is the world's easiest place to do business.
Ease of Doing Business Ranking
Singapore

New Zealand

Hong Kong

South Korea

United States

Malaysia

18

Japan

29

France

31

China

90

Philippines

95

Indonesia

114
0

20

40

60

80

100

120

How Singapore ranks on Doing Business

Singapore is the world's easiest place to do business.

Days Required to Start a Business, 2014

Country

Days

New Zealand
Australia
Hong Kong
Singapore
South Korea
Canada
Denmark
Malaysia
United States
Switzerland
Japan
Germany
China

0.5
2.5
2.5
2.5
4
5
5.5
5.5
5.6
10
10.7
14.5
31.4

Source: World Bank Databank

Index of Economic Freedom, 2015

Ranked 2nd freest economy
out of 178 economies by the
Heritage Foundation.
Business freedom
Trade freedom
Investment freedom
Fiscal freedom
Monetary freedom
Government spending
Financial freedom
Freedom from corruption
Property rights
Labor freedom

Rank

Country

Hong Kong

Singapore

New Zealand

Australia

Switzerland

Canada

Chile

Estonia

Ireland

10

Mauritius

G: Good public governance and efficient

bureaucracy
Global Competitiveness
Report 2014-2015 by
World Economic Forum
ranked Singapore 2nd out
of 144 countries.

Rank

Country

Switzerland

Singapore

United State

Finland

Germany

Japan

Hong Kong

Netherlands

United Kingdom

10

Sweden

Global Competitiveness Index (GCI)

Indicator

Rank/144

Institutions

Infrastructure

Macroeconomic environment

15

Health and primary education

Higher education and training

Goods market efficiency

Labor market efficiency

Financial market development

Technological readiness

Market size

31

Business sophistication

19

Innovation

G: Good public governance and efficient

bureaucracy
Corruption Perception
Index 2014 ranked
Singapore 7th out of 175
countries.

Rank

Country

Denmark

New Zealand

Finland

Sweden

Norway

Switzerland

Singapore

15

Japan

17

Hong Kong

17

United States

50

Malaysia

100

China

G: Prudent Fiscal policies

Ensure a balanced budget over the medium-term (fiscal
sustainability)
Government doesnt borrow for spending purposes; returns
from investment can more than cover debt servicing cost

Pursue growth and enhance competitiveness

Declining Tax Rates

60

Cut of CIT
to 33%

Start of GST
at 3%

GST GST
at 4% at 5%

GST
at 7%

50

40

30

20

10

0
1965

1970

1975

1980

1985

Corporate Income Tax Rates (%)

1990

1995

2000

2005

Top Personal Income Tax Rates (%)

2010

2015

Internationally competitive corporate

income tax rate (2014)
USA

40

India

34.61

France

33.33

Japan

33.06

Philippines

30

Australia

30

Germany

29.65

Malaysia

25

Indonesia

25

China

25

Korea

24.2

Global Avg

23.68

Denmark

23.5

UK

21

Thailand

20

Taiwan

17

Singapore

17

HK

16.5

Ireland

12.5
0

Source: KPMG

10

15

20

25

30

35

40

45

G:Prudent Monetary Policy

Exchange-rate centered monetary policy
BBC approach (Basket, Band, Crawl)
Promoting price stability for sustained economic growth
Preserving the purchasing power of S$

Low CPI Inflation

Source: IMF, WEO Apr 2015

Healthy Balance of Payments

BOP
Current Account
Balance as % of GDP
Overall Balance as % of
GDP

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2014

-5

-30

-12

-13

16

11

22

24

20

10

14

10

10

18

O: Investment in Human Capital

Investment in education
Compulsory primary education
Highly subsidized

Investment in adult training and

retraining
Skills Development Fund
SkillsFuture
Life expectancy
at birth

Mean years
of schooling

Literacy Rate

1980

72.1

4.7

..

1990

75.3

6.6

89.1

2000

78.0

8.6

92.5

2010

81.7

10.1

95.9

2014

82.5

10.6

96.7

EGO: Investment in Social Capital

Promotion of ethnic harmony and religious respect
Tripartism among unions, employers and government
National Wages Council was set up in 1972 to formulate wage
guidelines to be in line with long-term economic growth, so
that Singapores economic and social development would not
be undermined.

Strengthen rule of law and property protection

I: Investment in Physical Capital

Gross capital formation (% of GDP)
21% (1965), 46%, (1982), 25% (2014)
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

N: Capitalize on our geographical advantages

Capitalize on our
geographical
advantages to become:
Shipping hub
Aviation hub
Logistic hub

Export of services to
regional countries
Tourism centre
Healthcare centre
Education centre

Triple C: Export-oriented industrialization

Pursue export-oriented
industrializing strategy
Domestic Export as % of GDP
1970
1980
1990
2000
2014

31%
100%
89%
82%
70%

Encourage foreign direct

investment (FDI) from
multinational corporations
(MNCs) via attractive tax
incentives

Triple C Theory
Expansion of invisible trade, i.e. tourism, consulting
services, banking services, education services, etc
Conducive investment climate for MNCs
Expanding network of Free Trade Agreements (FTAs)
To reduce barriers to trade, e.g. tariff concessions, improve
market access
20 FTAs in force with 31 trading partners
ASEAN (1993), Japan (2002), Australia (2003), ASEAN-China (2005, goods;
2007, services), India (2005), China (2009), ASEAN-India (2009), etc

More FTAs concluded or under going negotiation

Canada, Mexico, etc

Is Singapore an Elephant Economy?

Log Per Capita Real GDP

11

10

United States

9
Singapore

7
1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Chow test shows that there was a structural break around 1997, indicating that
Singapore has began its transformation into an elephant economy since late 1990s.

Singapores savings rate remained high

90

60

80
50

70
60

40

50
30

40
30

Gross Domestic Savings

(current prices, billion S$)

20

20
10

10
0
1960
-10

1965

1970

1975

1980

1985

1990

1995

2000

2005

Gross Domestic Savings (% of GDP)

0
1965

1970

1975

1980

1985

1990

1995

2000

Gross Fixed Capital Formation has fallen

significantly
60

50
45

50

40
40
35
30
30
20
25
10

0
1965

Gross Fixed Capital Formation

(1995 prices, billion S$)

20

Gross Fixed Capital Formation (% of GDP)

15
1970

1975

1980

1985

1990

1995

2000

2005

1965

1970

1975

1980

1985

1990

1995

2000

Slowing rate of growth of capital stock and

an aging population
8

12

11
6

10

9
3

Population Age 65 & Above (% of Total)

log of Real Capital Stock per Capita

8
1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2
1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Singapore as an incipient elephant

Singapore is an incipient elephant
Experience of Japan shows that transformation from a
horse economy to an elephant economy is very gradual;
in the case of Japan, it spanned across a period of 20
years.
Pushing the envelop of growth
O is the most important growth driver of high-income
countries; G is the most important growth driver of the
middle-income countries
Diminishing returns from knowledge- and technologicaltransfer; has to increasingly reply on indigenous innovation for
growth