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This article presents the author's comments on the paper A Tale of Two Cities: Factor Accumulation and Technical Change in Hong Kong and Singapore, by Alwyn Young. The economies of Hong Kong, China and Singapore show similarities and differences. The economies of the two countries are highly open to international trade and have remarkably high ratios of exports and imports to gross domestic product (GDP). Both countries have been peaceful and politically stable for some time, although Singapore had difficulties in the 1960s and Hong Kong's prospects for 1997 are uncertain. They are nearly identical in age-adjusted fertility and mortality rates, although Hong Kong has somewhat higher average population growth because of great in-migration. Sharp contrasts show up for investment rates, the related behavior of consumption, the current-account balance, direct foreign investment and the role of government. Hong Kong's ratio of real gross investment to real GDP from 1960 to 1985 has been reasonably stable at around 21 percent. Singapore, in contrast, began at about 13 percent in the early 1960s, reached 21 percent between 1965 and 1969, and then soared to an average of 37 percent from 1970 to 1985.

This article presents the author's comments on the paper A Tale of Two Cities: Factor Accumulation and Technical Change in Hong Kong and Singapore, by Alwyn Young. As Young points out, there is a remarkable constancy of the capital-output ratio across countries; there is also a fairly stable capital-output ratio in advanced nations. The constancies have been well known for a long time and were in fact at the heart of the famous Solow conclusion that technological change, not capital accumulation its the source of most growth. Young finds that although the economies in Hong Kong, China and Singapore grew at similar rates, they accumulated capital at very different rates: Singapore invested much more heavily, in both physical and human capital. Singapore seems to have gained nothing at all from its high investment. A growth-accounting exercise produces the startling result that Singapore showed no technical progress at all. Both Singapore and Hong Kong are extremely open economies; Singapore in particular has an important share well over 100 percent, thanks to intermediate inputs. This means that measures of real output are essentially measures of real value added. Young suggests that Singapore has consistency pushed itself into technologies too far ahead of itself to benefit from learning by doing.

This article presents author Alwyn Young's response to comments on his paper A Tale of Two Cities: Factor Accumulation and Technical Change in Hong Kong and Singapore. Responding to the Robert Barro, Young noted that all endogenous growth models are in a sense trivially linear in something. The AK model and other models of endogenous growth certainly do not yield the same predictions. Nouriel Roubini noted that because of the large volume of foreign investment, there is likely to be a substantial gap between gross domestic product and gross national product (GNP). Because much of the capital in Singapore is foreign owned, and, therefore, much of the income to factors of production flows abroad, the growth rate of GNP may better reflect the welfare of Singaporeans and may help to explain the relative low growth rate of consumption. Michael Bruno observed that subsidies to capital accumulation will cause the true elasticity of output with respect to capital to be less than its observed factor share. Because both implicit and explicit subsidies play such an important role in Singapore, Bruno wondered if one could estimate the true production elasticities. Young replied that he did not attempt to estimate the true elasticities.

This paper uses a case study of Hong Kong and Singapore, two of the fastest growing economies in the postwar world, to evaluate competing theories of economic growth. Although broadly similar in historical background and economic structure, the two economies are strikingly different along three dimensions of interest to growth theorists: (1) Hong Kong began the postwar era with a considerably better educated labor force; (2) the subsequent accumulation of human and physical capital in Singapore far exceeds that in Hong Kong; and (3) Singapore has experienced considerably more rapid structural change, as government targeting policies have propelled the economy into technologically advanced sectors. A total factor productivity growth analysis of the two economies reveals that while TFP growth in Hong Kong accounts for over two-thirds of the increase in GDP per capita during the 1970s and 1980s, total factor productivity growth in Singapore during the same period is next to nil. These results constitute strong evidence against linear models of growth that emphasize contemporaneous externalities in the accumulation of factors of production. The poor TFP performance of the Singaporean economy, when associated with its astounding rate of structural transformation, supports models that emphasize the constraints imposed by learning by doing on the evolution of comparative advantage. [ABSTRACT FROM AUTHOR]