Asymmetric Effects of Local and Global Business Cycle Variations on the Sectoral Industrial Production in Singapore

Abstract

This paper investigates the sensitivities of Singapore’s sectoral industrial production to local and global business cycle variations using the auto-regressive distributed lag (ARDL) model in the nonlinear and asymmetric cointegration framework. By employing monthly time series data from Jan 1983 to Dec 2022 the study corroborates the commonly held view that durable industries are pro-cyclic to thelocal business cycle. However, the nature of cyclic sensitivity is different if viewed from a global perspective. Industries including pharmaceutical, computer, and motor vehicles industries flourish in both the local and global business cycle booms. Almost all industries having long-run linkages with global industrial production are also affected by global production growth in the short run. However, consistent with earlier studies for Southeast Asian countries, very few industries exhibit short-run asymmetries in their relationship with local and global business cycles. We found that incorporating long-run information also improves the forecasting ability of sectoral industrial production growth in Singapore.