Sources of Singapore’s Economic Growth

Singapore’s GDP growth moderated from an average of 7.3% p.a. in 1990-1999 to 5.1% in 2000-2009. At the same time, labour productivity growth fell from an average of 3.1% p.a. to 1.3%. Recently, MAS conducted a quantitative study of the factors that have contributed to economic growth over the past two decades². Such studies are part of MAS’ research into the broader issues and challenges facing the Singapore economy.

A country’s medium-term growth depends on its labour and capital stock as well as the efficiency with which it uses its resources. As such, economic growth can be attributed to labour inputs, capital inputs - including information and communication technology (ICT), as well as technological progress and intangible socio economic improvements, or total factor productivity (TFP).

The study showed that labour input has gained in importance as a source of growth for Singapore over recent years (Chart 4). While this was largely underpinned by increased hours worked, labour quality also became increasingly important as a result of ongoing government policies to build a higher-skilled and more educated workforce. Tertiary-educated workers, for example, now account for about one-third of the workforce, compared to just a quarter in the late 1990s.

At the same time, the contributions of capital and TFP to output growth have fallen. Notably, non-ICT investment as a share of GDP fell after the Asian financial crisis, although this was mitigated somewhat by steady ICT investment. In fact, Singapore’s share of ICT investment in GDP was higher than the average of advanced economies in 2005. The slowdown in TFP growth, meanwhile, is probably attributable to the increased frequency of cyclical shocks over the last decade, rather than to a structural downshift.

Forecasts were also made for the average growth of Singapore’s labour productivity over the next decade. The expected labour productivity growth rate of between 2% and 3% p.a., combined with the projection of an average 1-2% p.a. labour force growth by the Economic Strategies Committee, produces a medium-term potential GDP growth rate of 3-5% p.a. for the Singapore economy over 2010 – 2019. Thus, there is potential for higher quality albeit slower growth than in the past. The productivity gains over the next decade should be underpinned by higher quality of labour and capital inputs, and a stronger rate of capital accumulation. In particular, ICT investment will be an important enabler of capacity-driven growth.