Development Growth Models for Singapore and Malaysia: A Geweke Causality Analysis

Both Malaysia and Singapore have been viewed as success stories in economic development and are widely hailed as role models for other developing countries to follow. While Singapore has already moved to a high-income status fueled in part by the rapid development and upgrading of the services sector, Malaysia has become a bona fide upper middle income country, trying to move into the high-income category. Nearly five decades after undergoing a structural transformation and navigating several external shocks, both countries are now grappling with some crucial policy challenges that constrain their growth momentum. In this light, this paper aims to empirically explore the drivers of economic growth in both Singapore and Malaysia, using data from 1975 to 2012 under a Geweke causality framework. The empirical results suggest Malaysia’s new development trajectory should lie in rebalancing the economy toward greater domestic demand and building a robust services sector and Singapore should embrace a growth model that goes beyond relying heavily on foreign direct investment (FDI) as a source of economic growth.