DETERMINANTS OF ECONOMIC GROWTH: EVIDENCE OF SINGAPORE (Q1 2003-Q4 2014) BY KHOO HUI KENG LUM WAN CHING NG YII YEN YEW SIT YENG A research project submitted in partial fulfillment of the requirement for the degree of BACHELOR OF FINANCE (HONS) UNIVERSITI TUNKU ABDUL RAHMAN FACULTY OF BUSINESS AND FINANCE DEPARTMENT OF FINANCE SEPTEMBER 2015 Determinants of Economic Growth: The Evidence of Singapore (Q1 2003 – Q4 2014)__ Copyright @ 2015 ALL RIGHTS RESERVED. No part of this paper may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, graphic, electronic, mechanical, photocopying, recording, scanning, or otherwise, without the prior consent of the authors. ii Undergraduate Research Project Faculty of Business & Finance Determinants of Economic Growth: The Evidence of Singapore (Q1 2003 – Q4 2014)__ DECLARATION We hereby declare that: (1) This undergraduate research project is the end result of our own work and that due acknowledgement has been given in the references to ALL sources of information be they printed, electronic, or personal. (2) No portion of this research project has been submitted in support of any application for any other degree or qualification of this or any other university, or other institutes of learning. (3) Equal contribution has been made by each group member in completing the research project. (4) The word count of this research report is 20,839 words. Name of Student: Student ID: Signature: 1. KHOO HUI KENG 12ABB06144 __________________ 2. LUM WAN CHING 12ABB06849 __________________ 3. NG YII YEN 12ABB06104 ___________________ 4. YEW SIT YENG 12ABB07335 ___________________ Date: 10 September 2015 iii Undergraduate Research Project Faculty of Business & Finance Determinants of Economic Growth: The Evidence of Singapore (Q1 2003 – Q4 2014)__ ACKNOWLEDGEMENT First and foremost, we would like to take this opportunity to express our deepest appreciation and gratitude to our project’s supervisor, Ms. Kuah Yoke Chin for all the precious advice and guidance provided. In spite of being extraordinarily busy with her duties, she always took time out to hear and guide us on the correct path. Her patience in guiding and motivating us in this project has contributed greatly to success of this project. On the other hand, we would like to give our thanks to the authorities of Universiti Tunku Abdul Rahman (UTAR) for the good facilities and study environment provided throughout the completion of this project. Besides, we are truly appreciated with the online library system that UTAR has subscribed. It made our research easier in the sense of accessing to the data and retrieving the favorable journals. Furthermore, without a doubt, we perceive the emerging technology which helps us a lot during this period of time. Apart from the provided facilities in UTAR, there are some other online sources that providing us another way to obtain more information to make the whole progress of the project much efficient. Lastly, the appreciation will be given to our families and friends who gave us their full support and encouragement in finishing our project. iv Undergraduate Research Project Faculty of Business & Finance Determinants of Economic Growth: The Evidence of Singapore (Q1 2003 – Q4 2014)__ TABLE OF CONTENTS Page Copyright Page ------------------------------------------------------------------------------- ii Declaration ------------------------------------------------------------------------------------ iii Acknowledgement --------------------------------------------------------------------------- iv Table of Contents ----------------------------------------------------------------------------- v List of Tables ---------------------------------------------------------------------------------- ix List of Figures --------------------------------------------------------------------------------- x List of Abbreviations ------------------------------------------------------------------------ xi List of Appendices --------------------------------------------------------------------------- xii Preface ---------------------------------------------------------------------------------------- xiii Abstract --------------------------------------------------------------------------------------- xiv CHAPTER 1 – RESEARCH OVERVIEW 1.0 Introduction -------------------------------------------------------------------- 1 1.1 Research Background 1.1.1 Background of Singapore ------------------------------------------ 1 1.1.2 Background of Economic Growth in Singapore ---------------- 4 1.2 Problem Statement ------------------------------------------------------------ 7 1.3 Research Question ------------------------------------------------------------- 8 1.4 Research Objectives 1.4.1 General Objective --------------------------------------------------- 9 1.4.2 Specific Objectives -------------------------------------------------- 9 1.5 Hypotheses of the Study 1.5.1 Government Expenditure ----------------------------------------- 10 1.5.2 Goods and Services Tax ------------------------------------------ 11 1.5.3 Inflation ------------------------------------------------------------- 12 v Undergraduate Research Project Faculty of Business & Finance Determinants of Economic Growth: The Evidence of Singapore (Q1 2003 – Q4 2014)__ 1.5.4 Foreign Direct Investment --------------------------------------- 13 1.5.5 Export --------------------------------------------------------------- 14 1.6 Significant of the Study 1.6.1 Government -------------------------------------------------------- 15 1.6.2 Policy Maker ------------------------------------------------------- 16 1.6.3 Macroeconomists -------------------------------------------------- 18 1.7 Chapter Layout --------------------------------------------------------------- 19 1.8 Conclusion -------------------------------------------------------------------- 20 CHAPTER 2 – LITERATURE REVIEW 2.0 Introduction ------------------------------------------------------------------- 21 2.1 Review of the Literature 2.1.1 Economic Growth ------------------------------------------------- 21 2.1.2 Government Expenditure ----------------------------------------- 23 2.1.3 Goods and Services Tax ------------------------------------------ 25 2.1.4 Inflation ------------------------------------------------------------- 26 2.1.5 Foreign Direct Investment ---------------------------------------- 28 2.1.6 Export --------------------------------------------------------------- 30 2.2 Review of Relevant Theoretical Model 2.2.1 Government Expenditure – Keynesian Theory ---------------- 31 2.2.2 Goods and Services Tax – Theory of Reasoned Action ------ 32 2.2.3 Inflation – Quantity Theory of Money -------------------------- 33 2.2.4 Foreign Direct Investment – The Internalization Theory ---- 35 2.2.5 Export – Staple Theory of Growth ------------------------------ 37 2.3 Proposed Framework -------------------------------------------------------- 39 2.4 Conclusion -------------------------------------------------------------------- 39 CHAPTER 3 – METHODOLOGY 3.0 Introduction ------------------------------------------------------------------- 40 3.1 Data Collection Method 3.1.1 Secondary Data -------------------------------------------------------- 40 vi Undergraduate Research Project Faculty of Business & Finance Determinants of Economic Growth: The Evidence of Singapore (Q1 2003 – Q4 2014)__ 3.2 Sampling Design 3.2.1 Target Population – Economic Growth in Singapore -------- 42 3.2.2 Sampling Technique – Background of EView ---------------- 43 3.3 Flow of Data Processing --------------------------------------------------- 44 3.4 Data Analysis ---------------------------------------------------------------- 45 3.4.1 F-test ---------------------------------------------------------------- 46 3.4.2 T-test ---------------------------------------------------------------- 47 3.4.3 Normality Test ----------------------------------------------------- 49 3.4.4 Multicollinearity --------------------------------------------------- 50 3.4.5 Heteroscedasticity ------------------------------------------------- 51 3.4.6 Autocorrelation ---------------------------------------------------- 53 3.4.7 Specification Bias ------------------------------------------------- 54 3.5 Conclusion -------------------------------------------------------------------- 56 CHAPTER 4 – DATA ANALYSIS 4.0 Introduction ------------------------------------------------------------------- 57 4.1 Ordinary Least Square ------------------------------------------------------- 57 4.1.1 F-test ----------------------------------------------------------------- 65 4.1.2 T-test ----------------------------------------------------------------- 66 4.1.3 Normality Test ------------------------------------------------------ 68 4.1.4 Multicollinearity --------------------------------------------------- 69 4.1.5 Heteroscedasticity ------------------------------------------------- 70 4.1.6 Autocorrelation ---------------------------------------------------- 71 4.1.7 Specification Bias ------------------------------------------------- 72 4.2 Conclusion -------------------------------------------------------------------- 72 CHAPTER 5 – DISCUSSION, CONCLUSION AND IMPLICATION 5.0 Introduction ------------------------------------------------------------------- 73 5.1 Statistical Analyses ---------------------------------------------------------- 73 5.2 Major Finding 5.2.1 Government Expenditure ----------------------------------------- 74 vii Undergraduate