Abstract:

Singapore has been a focal point in the debate on the East Asian growth model, in which total factor productivity growth (TFPG) is unusually low relative to remarkable output growth. We use a rigorous growth accounting framework to decompose the sources of Singapore’s growth, including information technology and labor quality. Our results show that TFPG in Singapore for long periods was as low as 0.5-0.6 per cent, which verifies Singapore’s low TFPG. However, we found that Singapore’s low TFPG was caused not by a steady low TFPG pattern but by its acute vulnerability to external shocks, which causes TFPG to plummet in periods of turmoil. Singapore’s vulnerability to external shocks is due to its large export-reliant manufacturing sector and small domestic market. Our results help to further advance our understanding about Singapore’s growth model from previous studies, such as Young (1992, 1995), Kim and Lau (1994), and Hsieh (2002). We predict that, based on our base-case projection results, Singapore’s growth over the next decade will be at 2.35 per cent for labor productivity and 3.10 per cent for GDP relative to the respective rates of 2.52 per cent and 5.45 per cent, for the period of 1998-2008.