Staff Papers
Published Date: 01 February 1998

Growth in Singapore's Export Markets, 1991-96: A Shift-Share Analysis

MAS Occasional Paper No. 4  February 1998 - By Domestic Economy Division, Economics Department

1          Singapore's total exports have seen rapid growth over the last three decades, reflecting the outward orientation of the economy and strong growth in world trade. But given the openness of the economy, the spatial pattern and composition of Singapore's exports are susceptible to changes in regional and global economic trends. This paper employed the methodology of shift-share analysis to examine the trends in Singapore's export market growth over 1991-96. Exports data at the 3-digit Standard Industrial Trade Classification (SITC) are from Singapore Trade Statistics: Imports and Exports compiled by the Singapore Trade Development Board (TDB [various issues]), which do not include trade with Indonesia. Markets which saw an increase in exports greater than that implied by Singapore's overall export growth rate are said to have experienced positive net shifts in exports, and conversely for negative net shifts. These shifts in exports are then decomposed into sources of divergence, namely, industry mix effect; regional effect; and interaction effect, from which implications for Singapore's conduct of international trade could be drawn.

2           Industry Mix Effect captures that portion of the export divergence that is due to the difference between a country's composition of exports to a market and the composition of that country's total exports. A positive (negative) effect results when the proportion of exports to a market in fast growing commodities is greater (smaller) than the proportion of the country's overall exports in these commodities. Regional Effect measures the effect of differential growth of various export commodities to a market compared to other markets. Interaction Effect measures that portion of the net shift due to the difference in mix of commodity exports to the various markets interacting with the difference in growth of commodity exports to these markets.

           Best and Worst Performing Export Markets

3           Our analysis showed that Malaysia recorded the largest positive net shift for Singapore's exports from 1991-1996, followed by Hong Kong, China, Ireland and France. At the other end of the scale, the US, Germany, Thailand, Italy and Japan had, in that order, the largest negative net shifts. Export markets with positive net shifts increased their share of Singapore's total exports, and conversely for those with negative net shifts.

4          On a regional level, Singapore's exports to ASEAN-5 (i.e. Malaysia, Thailand, the Philippines, Brunei and Myanmar) posted the largest positive net shift. This reflects the increasing importance of the ASEAN countries as Singapore's export markets. After ASEAN-5, the East Asian market of China, Hong Kong, Japan, South Korea and Taiwan experienced the next largest positive net shift. On the other hand, Singapore's exports to the North American market - the US and Canada - experienced the largest negative net shift, followed by the European Union.

            Export Performance by Commodity Section

5          A decomposition of Singapore's net shifts in exports by commodity revealed that Singapore's strong export performance in Malaysia, Hong Kong, China, Ireland and France was underpinned by the rapid growth in exports of machinery & transport equipment (SITC 7), comprising largely electronics, to these countries. Even among the five export markets with the largest negative net shifts, viz. the US, Germany, Thailand, Italy and Japan, Singapore's exports of machinery & transport equipment grew faster than its overall export growth except in Germany and Italy.

6          Within the SITC 7 category, exports of office & data machines (SITC 75), and electrical machinery (SITC 77) were largely responsible for the positive net shifts. The strong growth in electronics exports to these five markets reflected Singapore's favourable industrial structure that was skewed towards an industry experiencing rapid growth over the last several years.

7           Singapore's exports of mineral fuels (SITC 3), comprising primarily refined petroleum products, did not grow as fast as its overall exports. With the exception of China, Hong Kong and Ireland, all the other markets registered a negative net shift, reflecting the state of an industry beset by over-capacity and low refining margins. Singapore faces increasing competition from South Korea and the Middle East, notably Saudi Arabia. Moreover, increased import-substitution by Thailand and Malaysia has limited Singapore's exports to these countries.

8          Exports of chemicals and related products (SITC 5), in general, also grew slower than Singapore's overall exports. Among the ten major export markets, the US experienced the largest negative net shift, followed by Malaysia and Japan. However, with projected healthy growth and capacity expansion for the industry over the next few years, its exports could well assume increasing importance.

          Sources of Divergence in Export Market Performance

9          A decomposition of the net shifts in exports into the various sources of divergence revealed some important observations. First, the industry mix effect in all ten markets was almost invariably negative in every 1-digit SITC commodity section exports except SITC 7. This was due to the concentration of Singapore's total exports in SITC 7 commodity and its much faster growth vis-୶is the other commodities over 1991-96. Second, with few exceptions, the interaction effects of the net shifts in 1-digit SITC exports were negative and usually associated with positive regional effects of a similar order of magnitude. This arose when exports to a market were not concentrated in those commodities with faster than average overall export growth

10         The significant positive net shift recorded in Malaysia was due, in aggregate, to the strong positive regional effect which more than offset the negative interaction effect. Singapore's exports of transport and machinery equipment (SITC 7) saw the greatest positive net shift in Malaysia, reflecting its increasing importance as Singapore's market for electronics exports. Nonetheless, the composition of exports to Malaysia in the 1991 base period was not as favourably predisposed compared to the overall export structure. As a result, Singapore's exports to Malaysia recorded negative interaction effects in almost every 1-digit SITC commodity, and small positive industry mix effect overall.

11         Singapore's sizeable positive net shift in Hong Kong was underpinned mainly by the solid performance of electronic valves (SITC 776) and telecommunications equipment (SITC 764). As evidenced by its large positive industry mix effect, the net shift in SITC 776 exports was due primarily to the rapid growth in Singapore's exports of the commodity, rather than from differential in export growth to Hong Kong vis-୶is the other markets. On the other hand, growth in Singapore's exports of SITC 764 to Hong Kong was derived mainly from the greater demand in Hong Kong relative to the other export markets.

12         China was one of Singapore's fastest growing markets, as reflected by the significant positive regional effects in all 1-digit SITC category exports except SITC 4. Exports of transport and machinery equipment (SITC 7) accounted for close to two-thirds of the positive net shifts in Singapore's total exports to China. In particular, exports of parts for office & data processing machines (SITC 759) to China expanded significantly faster than that to Malaysia and Hong Kong.

13         Singapore's performance in the US market was adversely affected by the decline in exports of all 1-digit SITC commodities except for transport & machinery equipment (SITC 7). Exports of miscellaneous manufactured articles (SITC 8), which comprised mainly articles of apparel and clothing accessories (SITC 84), experienced the largest absolute decline over 1991-96. The positive net shift in exports recorded for transport & machinery equipment (SITC 7) was largely due to the strong concentration in electronics valves (SITC 776), and data processing machines and parts (SITC 752-9) in Singapore's electronics exports to the US. But reflecting the slower growth in Singapore's SITC 7 exports to the US vis-୶is the world, the regional effect of the net shift in Singapore's SITC 7 exports to the US was significantly negative.

14         Among the major industrial markets, Germany was one of the worst performers. Although Singapore's exports to Germany experienced a smaller overall negative net shift than that to the US, it was the only market where Singapore had posted negative net shifts in all categories of exports at the 1-digit SITC level. This portends the decline of Germany as one of Singapore's key export markets.

15          Growth of Singapore's exports to Thailand was dragged down by our over dependence on exports of refined petroleum products (SITC 334), whose growth had contracted sharply in recent years. In contrast, exports of data processing machines (SITC 752), electronic valves (SITC 776) and telecommunications equipment (SITC 764) performed well as Thailand remains an important production base for electronics products, with significant intra-industry trade linkages with Singapore.

16          The overall negative net shift in Singapore's exports to Japan reflected the poor export performance in refined petroleum products (SITC 334) and beverages and tobacco manufactures (SITC 1). As in the case of Thailand, Singapore's exports of refined petroleum products to Japan saw large absolute decline over 1991-96. Nonetheless, Singapore's SITC 7 exports to Japan performed well, achieving one of the highest growth among the industrial markets.

           Trends in Singapore's Domestic Export Growth

17          To supplement our analysis of Singapore's total exports, the same shift-share technique was applied to its domestic exports. We found that the results were generally similar to our earlier conclusions on total exports, with a few important differences. First, while Malaysia and Hong Kong remained Singapore's top two markets for domestic export in terms of positive net shifts, Ireland is now elevated to the 3rd position, underlining its significance as Singapore's trading partner. Second, instead of the US, Thailand recorded the largest negative net shift for Singapore's domestic exports, reflecting the weaker performance of our domestic exports to Thailand compared to re-exports. Third, unlike our earlier analysis, Singapore's domestic exports to Japan experienced a favourable net shift. The different outcomes reflected the poorer performance of Singapore's re-exports to Japan relative to its domestic exports.

           Singapore's Exports & Overseas Investment

18          In recent years, Singapore's outward direct investments in the region have grown strongly, in line with the government's regionalisation effort aimed at creating an external wing for the Singapore economy to boost its foreign-source income. It is also consistent with the trend towards a transnational network of production facilities in the region to take advantage of the respective countries' comparative advantages. In this regard, it is interesting to note that the regional countries in which Singapore's exports recorded significant positive net shifts were also major recipients of its overseas investments. Three of Singapore's export markets with the largest positive net shifts, namely Malaysia, Hong Kong and China, were among the most popular destinations for Singapore's direct investments abroad.

           Implications & Conclusion

19          A number of significant implications on the Singapore economy could be drawn from the analyses. First, the government's decision to focus on the promotion of electronics industries was well justified by the fact that export growth of Singapore in recent years was largely driven by the impressive performance of electronics exports. While many have argued that Singapore's heavy dependence on the electronics industry has increased the economy's vulnerability to swings in the electronics cycle, it is almost certain that Singapore would not have achieved such high export growth if not for electronics exports. The key to sustaining robust export expansion will be continued emphasis on high growth sectors such as high-end disk drives and semiconductors.

20          Second, while electronics would remain the mainstay of Singapore's export engine, industries such as chemicals and related products (SITC 5), and mineral fuels, lubricants and related materials (SITC 3), and miscellaneous manufactured articles (SITC 8) should not be overlooked. As these products accounted for a significant 23% of our total exports in 1996, higher growth could be obtained if greater efforts were made to expand their share in selected markets where Singapore had a competitive advantage.

21          Third, while Singapore faces intense competition from the region in its exports to the developed markets, it has also benefited greatly from exporting to the regional economies. While the recent regional currency crisis may affect the short-term growth prospects of some regional economies, the long-term prospects for the region remain favourable. Nevertheless, the uncertainty surrounding the region has underscored the importance for Singapore to diversify its export base by reaching out to growth areas outside the region.

22          Fourth, the need for Singapore to explore new export destinations was further heightened by the diminishing significance of the US, Japan and the EU as its export markets. While Singapore has made some headway in penetrating into some non-traditional markets, its trading relations with a number of emerging markets remain superficial. Trading opportunities in other less familiar markets should be identified and exploited to further boost Singapore's export performance.

23          Finally, the regionalisation of the Singapore economy, with the attendant relocation of industries to countries in the region, has not led to a hollowing-out of Singapore's manufacturing sector, nor has it adversely affected export market growth. In fact, Singapore's exports are increasingly directed at markets where Singapore has heavily invested. In this regard, Singapore's regionalisation effort has been beneficial and initiatives such as the Singapore-Johor-Riau Growth Triangle, which exploits the different comparative advantages of the regional economies, should be promoted in order to attract investments of higher quality into Singapore.