Industrial development in Malaysia and Singapore: Empirical analysis with multiple‐cone Heckscher–Ohlin Model

This paper employs the multiple‐cone Heckscher–Ohlin model to analyze industrial development in Malaysia and Singapore. In particular, we focus on industrial upgrading along with capital accumulation as a key determinant for the cross‐country difference in production technology and income. By pooling two countries’ data on factor endowment and sectoral output in manufacturing from 1990 to 2008, we estimate the common industrial development paths of the two‐cone Heckscher–Ohlin model, the Rybczynski linear relationship between capital–labor ratio and sectoral output per capita. Our results demonstrate that, after controlling for quality of workers (by educational attainment), the two countries resided in different cones during our sample period, implying that Singapore succeeded in accumulating capital steadily with the support of foreign investment and upgrading its industry mix to make it more capital‐intensive. The separation of cones is also consistent with the observed gap in gross domestic product per capita between the two countries. Furthermore, we implement a factor‐augmenting productivity test to see the gaps in efficiency of capital and human‐capital‐augmented labor and confirm no significant difference between the two countries.