Capital Endowment, Technology and Productivity

Growth: An Empirical Study for Singapore*

Dr Tan Khee Giap

Co-Director, Asia Competitiveness Institute (ACI)
Associate Professor of Public Policy
Lee Kuan Yew School of Public Policy
National University of Singapore
&
Chairman, Singapore National Committee for Pacific Economic Cooperation
(SINCPEC)

*Prepared for presentation at the Global Think Tank Summit 2017 on Achieving Balanced Growth in Asia and the
World For Sustainable Development: The Role of Think Tanks jointly organized by Asian Development Bank,
Think Tank & Global Societies Program, University of Pennsylvania & ADB Institute, 1-3 May 2017, Yokohama,
Japan
In 2016 & 2017, ACI was ranked 13th globally, 2nd in Asia and 1st in Singapore amongst 90 think-tanks world-wide under the Best
University Affiliated Think-Tank category by Think-Tanks and Civil Societies Program at the University of Pennsylvania, USA
The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the 1
Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and
accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.
Presentation Outlines

I. Singapore as a Highly Open City State Economy: Deviation

From the Textbook Case
II. Introduction on Concepts of Average Labour Productivity 101
III. Nexus of Economic Transformation versus Productivity
Improvement and Technological Upgrading
IV. Empirical Simulation Analysis: Singapores Medium-Term
Capital Endowment, Technological Progress, Productivity,
Employment and Economic Growth Projections
V. Deeper Questions for Singapore: Transform or Risk a New
Normal of Low and Slow Growth!

2
I: Singapore as a Highly Open City
State Economy: Deviation from the
Textbook Case

3
 Ranking for Top 10 Economies by Total Nominal Gross Domestic Product (GDP) and GDP Per Capita, 2015
2015
Nominal GDP (US$) Nominal GDP ( PPP$)
() (PPP$)

Total (rank) Per Capita (rank) Total (rank) Per Capita (rank)
() ) ) () ()

United States 18.04 trillion (1st) 56,116 (8th) 18.04 trillion (2nd) 56,116 (12th)
China 11.01 trillion (2nd) 8,028 (74th) 19.81 trillion (1st) 14,450 (79th)
Japan 4.38 trillion (3rd) 34,524 (25th) 5.18 trillion (4th) 40,763 (27th)
Germany 3.36 trillion (4th) 41,313 (19th) 3.92 trillion (5th) 48,042 (16th)
United Kingdom 2.86 trillion (5th) 43,876 (14th) 2.72 trillion (10th) 41,756 (25th)
France 2.42 trillion (6th) 36,206 (23rd) 2.73 trillion (9th) 41,017 (26th)
India 2.10 trillion (7th) 1,598 (139th) 8.00 trillion (3rd) 6,101 (121st)
Italy 1.82 trillion (8th) 29,958 (27th) 2.26 trillion (11th) 37,217 (31st)
Brazil 1.77 trillion (9th) 8,539 (70th) 3.20 trillion (7rd) 15,391 (76th)
Canada 1.55 trillion (10th) 43,249 (16th) 1.58 trillion (16th) 44,197 (23rd)
Singapore 292.74 billion (36th) 52,889 (9th) 472.59 billion (37th) 85,382 4 (4th)
Source: Compiled by Asia Competitiveness Institute based on data obtained from the World Bank (accessed on 8 March 2017).
: http://data.worldbank.org/; 2017 38
2015 Ranking of GDP Per Capita Adjusted for Purchasing Power Parity (PPP) Amongst 191 World
Economies 2015191
Economy Total (US$) Rank Economy Total (US$) Rank

Qatar 132,870 1 Hong Kong 56,878 12

Macao 101,293 2 USA 56,084 13

Luxembourg 99,506 3 Saudi Arabia 53,802 14

Singapore 85,382 4 Netherlands 49,624 15

Brunei 79,508 5 Bahrain 49,601 16

Kuwait 70,542 6 Sweden 48,199 17

Norway 68,591 7 Australia 47,644 18

UAE 67,217 8 Austria 46,986 19

Ireland 9 Germany 20
65,806 46,973
Sen Marino 62,938 10 Taiwan 46,833 21

Switzerland 58,647 11 Denmark 45,723 22

5
Source: International Monetary Fund, World Economic Outlook Database, October 2015
*201610
2015 Ranking of GDP Per Capita Adjusted for Purchasing Power Parity (PPP) Amongst 191 World
Economies 2015191
Economy Total (US$) Rank Economy Total (US$) Rank

Iceland 45,666 23 Thailand 77
16,130
Canada 45,602 24 China 89
14,340
Belgium 44,148 25 Indonesia 103
11,149
Oman 43,707 26 Philippines 119
7,282
Equatorial Guinea 27 India 125
43,522 6,187

United Kingdom 41,499 28 Vietnam 6,037 126

France 41,476 29 Myanmar 5,480 130

Finland 41,109 30 Laos 5,351 134

Japan 38,142 31 Pakistan 4,906 135

Porto Rigo 37,891 32 Bangladesh 3,629 142

Malaysia 26,211 48 Cambodia 3,498 145

6
Source: International Monetary Fund, World Economic Outlook Database, October 2015
*201510
Table 1: Nominal GDP Growth for Singapore, Malaysia and Hong Kong,
1961-2015 (Source: The World Bank)
1 1961-2015 (:)
400000

350000

300000

250000

200000

150000

100000

50000

0
1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

7
Table 2:Nominal GDP Per Capita for Singapore, Malaysia and Hong Kong,
1961-2015 (Source: The World Bank)
21961-2015(:)
60,000.0

50,000.0

40,000.0

30,000.0

20,000.0

10,000.0

-
1967

1977

1987

1997

2007
1961

1963

1965

1969

1971

1973

1975

1979

1981

1983

1985

1989

1991

1993

1995

1999

2001

2003

2005

2009

2011

2013

2015

8

 Singapores Economic Development after the Exit from Malaysia
Major Macroeconomic Indicators for Singapore and Malaysia, 1987-2015
Fiscal year Real GDP Growth / Gini coefficient Unemployment Rate Composite CPI Growth
Malaysia Singapore Malaysia Singapore Malaysia Singapore
1998 -7.4 % -2.2 % 3.2 % 2.5 % 5.3 % -0.3 %
1999 6.1 % 6.1 % 3.4 % 2.8 % 2.7 % 0%
2000 8.9 % 8.9 % 3.0 % 2.7 % 1.5 % 1.4 %
2001 0.5 % (0.46) -0.9 % (0.45) 3.5 % 2.7 % 1.4 % 1.0 %
2002 5.4 % 4.2 % 3.5 % 3.6 % 1.8 % -0.4 %
2003 5.8 % 4.4 % 3.6 % 4.0 % 1.0 % 0.5 %
2004 6.8 % 9.5 % 3.5 % 3.4 % 1.5 % 1.7 %
2005 5.3 % 7.5 % 3.5 % 3.1 % 3.0 % 0.4 %
2006 5.6 % (0.46) 8.7 % (0.47) 3.3 % 2.7 % 3.6 % 1.0 %
2007 6.3 % 9.1 % 3.2 % 2.1 % 2.0 % 2.1 %
2008 4.8 % 1.8 % 3.3 % 2.2 % 5.4 % 6.5 %
2009 -1.5 % -0.6 % 3.7 % 3.0 % 0.6 % 0.6 %
2010 7.4 % (0.44) 15.2 % (0.47) 3.4 % 2.2 % 1.7 % 2.8 %
GDP Growth 1987-997 1998-008 GDP Size 1977 / 1987 1997 2007 2015

Malaysia 8.9 % p.a. 4.4 % p.a. Malaysia US$14/32 billion US$100 billion US$194 billion US$296 billion

Singapore 9.2 % p.a. 5.2 % p.a. Singapore US$7/ 22 billion US$100 billion US$180 billion US$308 billion

SNG / MAL 50% / 69% 100% 93% 104%

Data source: World Bank, Department of Statistics Singapore, Department of Statistics Malaysia
Note: 2000 - 2020 Potential GDP Growth Rate: Malaysia: 5.5%; Singapore: 3.5% (projected by ACI-LKYSPP, NUS)
9
 Benchmarking Economic Performances of Two City-States: Hong Kong versus Singapore
Major Macroeconomic Indicators for Singapore and Hong Kong, 1998 -2015
Fiscal year Real GDP Growth / Gini coefficient Unemployment Rate Composite CPI Growth
Hong Kong Singapore Hong Kong Singapore Hong Kong Singapore
1998 -5.9 % -2.2 % 2.2 % 2.5 % 2.9 % -0.3 %
1999 2.5 % 6.1 % 4.6 % 2.8 % -4.0 % 0%
2000 7.7 % 8.9 % 6.2 % 2.7 % -3.7 % 1.4 %
2001 0.5 % (0.53) -0.9 % (0.45) 4.9 % 2.7 % -1.7 % 1.0 %
2002 1.7 % 4.2 % 5.1 % 3.6 % -3.1 % -0.4 %
2003 3.1 % 4.4 % 7.3 % 4.0 % -2.5 % 0.5 %
2004 8.7 % 9.5 % 7.9 % 3.4 % -0.4 % 1.7 %
2005 7.4 % 7.5 % 6.7 % 3.1 % 0.9 % 0.4 %
2006 7.0 % (0.53) 8.7 % (0.47) 5.6 % 2.7 % 2.1 % 1.0 %
2007 6.5 % 9.1 % 4.8 % 2.1 % 2.0 % 2.1 %
2008 2.1 % 1.8 % 4.0 % 2.2 % 4.3 % 6.5 %
2009 -2.5 % -0.6 % 3.6 % 3.0 % 0.6 % 0.6 %
2010 6.8 % (0.53) 15.2 % (0.47) 5.2 % 2.2 % 2.3 % 2.8 %
GDP Growth 1987-1997 1998-2008 GDP Size 1977 / 1987 1997 2007 2015

Hong Kong 6.0 % p.a. 3.8 % p.a. Hong Kong US$16/51 billion US$177 billion US$212 billion US$309 billion

Singapore 9.2 % p.a. 5.2 % p.a. Singapore US$7/22 billion US$100 billion US$180 billion US$308 billion

SNG / HK 43 % / 43% 56% 85% 100%

Data source: World Bank, Department of Statistics Singapore, Hong Kong Census and Statistics Department
Note: 2000-2020 Potential GDP Growth Rate: Hong Kong: 3.5%; Singapore: 3.5% (Projected by ACI-LKYSPP, NUS)
10
 Growth of Singapores Economy, 1960 - 2015
, 1960 - 2015
(By SPRING Singapore)

2015 GDP:
US$308 billion
2015 Per
Capita
320 First National 80
GDP:
300 US$56,284
Technology Plan
280 70
1991
260

Per Capita GDP US$K

240 60
220
GDP US$B

200 50
180
160 40
140
120 30
100
1960 GDP:
80 US$0.7 billion 20
60 1960 Per
40 Capita GDP: 10
20 US$428
0 0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

1960s 1970s 1980s 1990s 2000

Labour Skill Capital Technology Knowledge &
intensive intensive intensive Intensive Innovation Based Economy
11
Phases of Singapores Economic Development, 1960s 2000s
, 1960s - 2000s (By SPRING Singapore)

Knowledge
Intensive
Jobs &
GDP Growth Technology
Intensive 2000s
Capital Knowledge based
Economy
Intensive 1990s
One-North
Skill Cluster
Development
Developments:
Intensive 200 hectares
1980s Key Game
2000-20 Master
Labour Creating Business Changer
Plan
Parks: Twin Jurong Island
Intensive Engine of
1970s Manufacturing
Petrochemical
Industrial estates Complex
and Services
Singapore Science
with amenities at
Parks
1960s the fringe of
residential towns
The First
Industrial
Township Flatted Factories
Jurong Industrial
Estate

12
Report Cards on Achievements of Singapore and Hong Kong which may
be shifting away, but are Singaporeans happy?
As world freest economy: 1st Hong Kong; 2nd Singapore 3rd Australia; 4th Switzerland; 5th New
Zealand (2014 ranking by The Heritage Foundation)
On competitiveness of global financial center: London 1st; New York 2nd; Singapore 3rd ; Hong
Kong 4th ; Tokyo 5th (2016 ranking by London Think-tank Z Yen)
Overall least risky country for Investment :1st Norway; 2nd Switzerland; 3rd Luxembourg; 4th
Singapore; 5th Sweden (2013 ranking by Wikipedia)
As least corrupt country:1st New Zealand; 2nd Denmark; 3rd Finland; 4th Sweden; 5th Singapore
(2013 ranking by World Democratic Audit)
On global economic competitiveness: 1st Switzerland; 2nd Singapore; 3rd Finland; 4th Germany;
5th USA; 6th Sweden; 7th Hong Kong (2014 World Economic Forum)
On purchasing power for ordinary residents: Geneva 1st; Singapore 21st , Seoul 27th ; Taipei
42nd ; Tokyo 53rd ; Hong Kong 67th (2016 Ranking by ACI-LKYSPP on worlds major 103 cities)
On cost of living for expatriates & ordinary residents: 4th & 49th Singapore and 10th & 59th
Hong Kong (2016 Ranking by ACI-LKYSPP on worlds major 103 cities)

Singapore is being ranked amongst the worlds top positions notwithstanding that she
has no natural resources, with a small population base, limited geographical size and
being a highly open economy .
Hong Kong economic competitiveness and financial resiliency have since deteriorated
notwithstanding robust support of her motherland China coupled by worsening 13 social-
political discontent .
II: Introduction on Key Concepts of
Average Labour Productivity 101

14
II Key Concepts: Value-Added - The Core of GDP
Example: Singapore Economy in 2005
S$ Millions Share in GDP
GDP 208,763.70 100.0%
Value-Added (VA) 199,267.5 95.5%
Compensation of employees 83,938.8 40.2%
Gross operating surplus 111,906.9 53.6%
Taxes on production 3,421.8 1.6%
Import duties & sales taxes 9,496.2 4.5%
Import duties 8,218.5 3.9%
Taxes on products 1,277.7 0.6%

Source: Singapore I-O Table 2005, Singapore Statistics

15
II Key Concepts: Value-Added (VA)

The VA of the economy is the sum of all VAs

generated by its industries.

Operating surplus include:

Profits
Depreciation
Interest payment
...

16
II Key Concepts: Average Labor Productivity (ALP)

ALP of an industry is computed as the value-added (VA) it generates

divided by its total employment (L):

ALP=VA/L
Why ALP Growth is important for Singapore?
Singapores ALP is about 40-70% relative to the US level for most
industries and the entire economy.
Increasing ALP is the only way for Singapore to improve standards
of living.
Promoting ALP growth fosters the economys transformation
towards higher value-added activities and strengthens its
competitiveness. 17
II Key Concepts: Promoting ALP Growth
Increasing capital deepening, enhancing labor quality
and improving efficiency of resources use
ln( y ) SK ln( k ) SL ln( LQ ) ln( A)

ALP Growth
= Capital deepening + Labor quality enhancement+ Efficiency
improvement

GDP Growth = ALP growth + Employment expansion

ALP should account for over 60% of GDP growth.

For example, if GDP growth is 5%,
ALP growth should be 5%*60%=3%.
18
II Key Concepts: Promoting ALP Growth by working
harder and/or working smarter
In promoting labor productivity growth, we can differentiate
between hard workers versus smart workers
ALP= VA/ EMP = (OR/EMP)*(VA/OR)
ALP growth is driven by
Growth in operating revenue over employment (OR/EMP)
Management effort to maximize operating revenue over
employment requires greater worker perspiration by
squeezing hard on dollar per employee so that they work
harder;
Improvement in value added over operating revenue (VA/OR)
which focuses on value creation and shift towards higher
value-added activities are done by workers who work smarter19
 III: Nexus of Economic
Transformation versus
Productivity Improvement and
Technological Upgrading

20
Singapores Average Labor Productivity Relative to the United States of
America

21
Figure 1: Wages-Productivity Nexus: Economic Transformation and
Technological Upgrading

22
Wages-Productivity Nexus: Economic Transformation and Technological Upgrading
As Figure 1 shows, ideally Singaporeans would like to move steadily and directly from Quadrant A,
exhibiting low wage-low productivity stalemate towards the high wage-high productivity of inclusive
competitiveness, or Quadrant D. Some academics would lie to move from the current Quadrant A
directly to the Quadrant B (i.e. high wage-low productivity hybrid) which hopefully would reach
Quadrant D. In contrast, the core of the union movement aims to move from Quadrant A to Quadrant
C (i.e. low wage-high productivity hybrid) and eventually arrive at Quadrant D.
On the one hand, Quadrant A or the low-wage-low-productivity stalemate Singapore is experiencing
currently for some blue collar workforce is another classic case of labor market failure distorted by
abundant supply of cheap foreign workforce in a number of industries which minimized incentive for
employers to drive productivity. On the other hand, employees are understandably reluctant or unable to
put in their best performance given the poor effort-remuneration wage structure. Such a structure has led
to productive local workforce tending to shun those industries because stagnated low wages are
unmatched by the rising cost of living.
However, the Quadrant C, may not be sufficient either, as upgrading skills tend to take a longer time to
materialize. Further, the current manpower policies on foreign workers which are abundant in supply
tend to suppress wages of indigenous blue collar workers unless and until a coordinated government
effort to fine-tune the inflow on foreign worker by sectors happens. Indeed, there is a facilitative role of
the government which can be activated to correct labor market failure.

23
Wages-Productivity Nexus: Economic Transformation and Technological Upgrading

Conversely, as Singapores economy has continued to restructure, over the last decade (2003-
2012), value added in goods producing industries has declined from 33 percent to 29 percent,
while value added in services providing industries has steadily increased from 63 percent to
69 percent. Since the latter industries are less amenable to automation and other labor-saving
technological improvements, Singapore needs a relatively bigger labor force over-time as the
economy gravitates towards maturity with both resident and non-resident blue and white
collar workers.
Thus, Singapore is faced with the dual conundrum of expanding the workforce by bringing in
non-residents to ensure the economy continues to restructure as a means of sustained growth
in the global economy, while simultaneously managing the persistent and growing low-wage
indigenous workforce.
Empirical work has suggested that while wage increase above productivity has led to a loss in
international competitiveness during the early 1980s, the strong exchange rate and the global
downturn in the electronics cycle in 1984 as well as the regional slowdown also contributed
to the severity of the decline in 1985.

24
Promoting ALP Growth: A Strategic Framework
Fostering the enabling/pushing factors
+ Human and financial capital for entering higher
value-added activities
+ Supporting industries & cluster formation
+ Most up-to-date market and technology
information
+ MDA regulations
+ Rivalry and competition
Renewing firm-level strategy
+ Introducing products with higher value-added
+ Moving towards higher value-added activity and
technology
+ Penetrating more sophisticated markets and/or
higher-end market segments
+ Fostering entrepreneurship spirit and risk taking
behavior

Increasing output per worker Increasing value per output unit

Transformational
+ Workers: Skills, working attitude and + Quality control and improvement

Improvements
disciplines, Health + Design; R&D
+ Process: investment in equipment (capital + Packaging & branding
deepening); Production management. + Delivery and distribution
+ Promotion/Advertisement
+ Communication with customers / After Sale
services

Boosting
Productivity
Growth

25
Discontinued Economic Growth for Singapore, 1965-2016
(1973-1975 Oil crisis;1985: Economic Recession; 1997-98 Asia Financial crisis; 2001:Dot-com bubbles
2008-09 Global Financial Tsunami

Period 1965-1990 Period 1990-2016

14 1973-75 Oil 1985 1997-98 Asian 2008-09 Global

Crisis Recession Financial Crisis Economic Crisis

12 2001 Recession

10

8
Percent

-2
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Annual Growth 10-YMA Growth
Singapore: Primary budgetary position, special transfers, net investment income
& overall budgetary account (All figures are in S$ million)
Primary Surplus/(Deficit)^ Special transfers# NII contributions@ Overall budget surplus/(deficit)*
FY1998 977 52 -- 925
FY1999 5,566 682 -- 4,885
FY2000 3,531 1,835 2,287 3,983
FY2001 1,190 5,264 1,375 (2,698)
FY2002 (1,683) 1,802 3,675 191
FY2003 (3,184) 603 1,900 (1,887)
FY2004 (1,487) 1,661 3,043 (105)
FY2005 (463) 829 2,777 1,486
FY2006 (549) 3,580 2,845 (1,284)
FY2007 (639) 2,071 2,019 (691)
FY2008 1,600 4,390 3,650 (2,150)
FY2009 (2,344) 4,071 7,006 (819)
FY2010 722 1,505 7,352 980
FY2011 4,514 2,909 7,916 4,003
FY2012 6,811 1.458 7,870 5,821
FY2013 5,292 2,990 8.289 4,988
FY2014 4,151 4,330 8,553 (125)
FY2015 (4,250) 4,540 9,900 (4,880)
FY2016 (2,720) 2,870 14,370 5,180
FY2017^ (5,620) 2,570 14,110 1,910
* Overall budgetary surplus/(deficit) in S$ million = Primary position + Special transfers + Net Investment Income (NII) contributions
^ Primary budgetary surplus/(deficits) in S$ million; ^ Estimated
# Average special transfers per year (2000-2017): $2.378B (excluding top ups to endowment and Trust Funds)
@ Average NII contributions per year (2000-2017): $6.052B; 2000-2008: $2.619B ; 2009-2015 : $8.13B; 2016-2017: $14.240B
Gini Coefficient for Hong Kong, Singapore and Malaysia, 19762015
(Source: Singapore Department of Statistics, Malaysia Department of Statistics & Hong Kong Government Statistical
Department)
Hong Kong Singapore ^After special transfers Malaysia

1976:0.43;1981:0.45; 1986:0.45;1991:0.48 -- --
-- -- 1995: 0.46
1996: 0.52 -- --
-- -- 1997: 0.46
-- -- 1999: 0.44
-- 2000: 0.44 --
2001: 0.53 2001: 0.45 --
-- 2002: 0.45 2002: 0.46
-- 2003: 0.46 --
-- 2004: 0.46 (0.45^) 2004: 0.46
-- 2005: 0.47 (0.45^) --
2006: 0.53 2006: 0.47 (0.42^) --
-- 2007: 0.48 (0.44^) 2007: 0.44
-- 2008: 0.47 (0.42^) --
-- 2009: 0.47 (0.42^) 2009: 0.44
-- 2010: 0.47 (0.43^) --
2011: 0.54 2011: 0.47 (0.42^) --
-- 2012: 0.48 (0.43^) 2012: 0.43
-- 2013: 0.46 (0.41^) --
-- 2014: 0.46 (0.41^) 2014: 0.44
-- 2015: 0.46 (0.41^) --
2016: ? 2016: 0.46 (0.40^) 2016: ? 28
IV: Empirical Simulation Analysis:
Singapores Medium-Term Capital
Endowment, Technological
Progress, Productivity and
Economic Growth

29
 The sources of GDP growth can be summarized by the following accounting decomposition
(i):

ln Y Kict ln Kict Knict ln K nict L ln H L ln LQ ln A

K denotes contribution of capital input including ICT capital and non-ICT capital. L denotes
contribution of labor input based on hours worked and labor quality differentiation. A is
contribution of Total Factor Productivity growth.

Sources of ALP growth can be categorized by the following growth decomposition (ii):

ln y Kict ln kict Knict ln knict L ln LQ ln A

K constitutes contribution of capital deepening including ICT capital and non-ICT capital. L is
contribution of labor quality and A denotes contribution of Total Factor Productivity (TFP)
growth (see Jorgenson and Khuong, 2010 and Vu, 2013). Thus, policy strategies to promote GDP
growth consist of labor productivity growth plus employment expansion. Typically labor
productivity should account for over 60 percent of GDP growth.
30
We have conducted simulation exercises by assuming a certain level of employment, labor
share, total factor productivity, labor and capital quality growth and econometrically we have
simulated three medium-term GDP growth scenarios achievable with various required
productivity growth targets.

We thus projected GDP and growth for the period 2009 to 2020 using the following model:

Based on the actual economic performance over the period 1998 to 2008, we have simulated
the associated GDP growth band and productivity target for pessimistic, optimistic and the
base case scenarios which we perceive to most likely prevail during the period 2009 to 2019
as shown in Table 1.

By making certain assumptions on employment growth, total factor productivity growth,

capital accumulation enhancement, labor and capital quality growth, we are able to simulate
the various productivity growth scenarios which are associated with the corresponding GDP
growth projections. 31
Table 1: Projections of GDP and ALP Growth, 2009-2020:
Assumptions and Results

Actual 1998- Pessimistic

Base Case Optimistic Remarks
2008 scenario
Scenario

Labor share 0.532 0.532^ 0.532^ 0.532^ ^ assumed

Labor quality growth (%) 1.24 1.00^ 1.24^ 1.50^ ^assumed

Capital accumulation enhancement 0.08 0.08^ 0.25^ 0.50^ ^assumed

Capital quality growth (%) 0.29 0.18^ 0.29^ 0.40^ ^assumed

Total factor productivity growth (%) 0.51 0.30^ 0.51^ 0.70^ ^assumed

Employment growth (%) 2.92 1.00 1.50 2.00 ^assumed

Productivity growth (%) 2.52 1.79* 2.67* 3.61* *projected

32
GDP growth (%) 5.45 2.79* 4.17* 5.61* *projected
Projections of GDP and ALP Growth, 2009-2020: Assumptions and
Results

For the period 2009-2019, under the base case scenario, Singapores GDP growth is expected
to average at 4.17 percent per annum which requires productivity growth of 2.67 percent. Such
outcomes are to be achieved with slower employment growth of 1.5 percent, much slower than
the 2.92 percent over the 1998-2008. We assumed capital deepening over time from 0.08 to
0.25, ceteris paribus.

Under the optimistic scenario, Singapores average GDP growth over the same period would
reach 5.61 percent which requires productivity growth of 3.61 percent. Such performance will
be achieved with employment growth of 2 percent, faster than the base case scenario but
slower than the actual growth in 1998-2008. Under this scenario, we assumed higher quality in
both labour and capital growth, higher capital accumulation enhancement and total factor
productivity.

Under the pessimistic scenario, Singapores average GDP growth over the same period would
be 2.8 percent which requires a lower productivity growth of 1.8 percent with much slower
employment growth of 1 percent with worsening quality in labour, capital and TFP.

33
V: Deeper questions for Singapore:
Transform or risk a new normal of
low and slow growth!

34
2017 Committee for Future Economy: Transform or risk new
normal of low, slow growth!
By 2030, For every 5 Singaporeans there will be one who is 65 of age or older, and given the
population structure, by 2025 we will have population decline. We must revisit Singapores growth
potential, re-shape our new economic structure, re-calibrate the mode of our education system, re-
think the sustainability of our welfare state, remain open to foreign workforce and have a clear-
minded vision regarding Singapores longer-term optimal population mix without being too
emotional. Here are some final thoughts:
Should low and slow growth be Singapores Economic New Normal?
Should Singapore go the way many highly developed economies did by gravitating towards a
service-oriented economy or should we try to maintain a percentage share of the Singaporean
economy in manufacturing activities?
Do we want a welfare system going forward or do we insist on the current co-payment system
supplemented by government-driven efforts to mitigate income disparity?
What should be the basic principles and future public policy tolerance be for accommodating an
optimal size of foreign manpower including the blue and white collar workforce which would also
affect the longer-term official retirement age?
Would academic excellence divert or dilute our best Singaporeans from being entrepreneurial in
business, creative in thinking and refrain from risk-taking?
What is the steady state optimal population size for Singapore that would physically and
economically sustainable through detailed planning with seamless public policy coordination
35
and also socially and politically acceptable by the population at large?
 Thank you for your attention!
References
.
Jorgenson, D. and K. Vu (2010). Potential Growth of the World
Economy, Journal of Policy Modelling, Vol. 32, pp.615-631.

Ramkishen S Rajan, Khee Giap Tan & Kong Yam Tan (2014),
Fiscal Sustainability and Competitiveness in Europe and Asia,
published by Palgrave Macmillan

36