Dual Economy Thesis

Dual Economy Thesis-1
I remember walking around in empty shopping centers, eating in empty restaurants in past recessions.

I remember walking around in empty shopping centers, eating in empty restaurants in past recessions.

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He credited this achievement to various government policies, such as the $20.5-billion Resilience Package, which included the Jobs Credit scheme, which offsets part of employers’ wage bills.

All of these explanations are likely true to some extent.

Local economist Manu Bhaskaran presciently explained so back in May 2009: We have one part of the economy that, judging by ownership and employment, is largely foreign and another part largely Singaporean.

For example, manufacturing is largely foreign — MNCs produce the bulk of exportable manufactured goods and a huge fraction of the workforce comprises foreign workers.

But the most likely explanation (in my opinion) for why the recession did not appear to hit employment and consumer spending particularly hard was because the economic slowdown impacted the foreign-oriented sector of Singapore’s economy most, while barely scratching the local sector.

Likewise, when the economy rebounded, growth was largely due to to the foreign sector who benefited immensely from the turnaround.But why is it despite the rosy headlines, Singaporeans on the ground do not feel as though they have benefited personally?Dr Chua’s theory goes a long way in explaining this apparent disparity. It is certainly a worthwhile read, and certainly something which I highly recommend. Briefly stated, the theory says that Singapore’s economy comprises of two distinct sectors, the local sector, one largely comprising of small-medium enterprises which caters to the local population and is largely dependent on private consumer spending and the foreign/international sector, which is made up largely of MNCs, foreign labour and depends on exports to other countries.This is apparent when we consider the fact that foreign workers employed by the foreign sector typically earn less than Singaporeans.Nevertheless, the dual economy theory goes a long way in explaining the causes of inequality in Singapore.These activities boomed between 20 and have now collapsed.In the boom, they did not seem to boost the welfare of ordinary Singaporeans as much as the GDP growth numbers implied, and they are not hurting Singaporeans very much on the way down, either.Lucky Tan for example, noted that unlike previous recessions, shopping malls were still bustling with people, expensive eateries still packed with customers: Someone observed and posted in the comments section of my blog that people are still spending, shopping centers seems to be as crowded as before and restaurants appear to be doing well etc like nothing bad is happening.Taxi drivers I spoke to tell me that business is off the high but not catastrophic…the 2003 recession quite horrible for the taxi business….people just cut back until taxi drivers were better off giving up driving because they can’t overcome the rental.Our back-of-the-envelope estimates suggest that roughly half of the economy is foreign.Interestingly, the parts of the economy that are currently in free fall — manufacturing and key parts of finance — are largely foreign.


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