Understanding the effects of exchange rates on the cost of living for expatriates and ordinary residents in Singapore and Hong Kong

It is important to factor in the effect that exchange rates have on cost of living rankings while computing cost of living indices, as conversion of local prices into a common currency is imperative for any ranking of cities in different parts of the world. Considering that such computations are going to be affected by exchange rate levels in the different cities, this paper empirically analyses the cases of Singapore and Hong Kong to understand the impact of exchange rates on their cost of living rankings. Our simulation analysis for these two global Asian cities shows that exchange rate fluctuations have a significant impact on the cost of living rankings for both expatriates and ordinary residents. In addition, our study indicates that cities in the developed Western countries are more expensive for ordinary residents than cities in less developed countries elsewhere, especially in Asia. We attribute this to structural differences in labour cost between these two sets of countries.