Total factor productivity growth accounting in the construction industry of Singapore

Abstract

Total factor productivity (TFP) determines long-term economic growth and is a comprehensive industry-level productivity measure. This paper proposes Jorgenson's method as an appropriate TFP measurement for the construction industry. The method is less restrictive than the conventional Chau's approach, as it does not impose the Hick Neutral Technical Change assumption. Jorgenson's method is then applied to estimate TFP growth in the construction industry of Singapore over 1984-1998. TFP growth is found down by 1.53% per annum over this period, indicating that the performance of TFP in the construction industry lags behind the rest of economy. TFP growth is also found to be fluctuating over time and tends to move in tandem with the construction business cycle. As a monitor of progress towards TFP achievement, factors influencing TFP growth in the construction industry of Singapore over 1984-1997 are identified. Seven factors are found to be significantly related to TFP growth. Among them, economies of scale, R&D by the industry, investment allowance granted and labour unions are leading contributors to TFP growth; while foreign worker, construction accidents and pre-cast are major hampers. The general methodology presented in this study can be applied to other countries. Future studies are required to find appropriate indicators for factors unquantified.