TRANSITIONING FROM FACTOR TO PRODUCTIVITY DRIVEN GROWTH IN SINGAPORE : ISSUES AND CHALLENGES

Abstract

Previous studies have shown that TFP (Total Factor Productivity) growth has an insignificant role to play in the growth of Singapore's economy. Economist such as Paul Krugman and Alywn Young have seriously questioned Singapore's sustainability in economic growth. As Singapore is reaching the stage whereby capital accumulation could no longer be the main source of growth due to the diminishing returns to capital, increasing TFP seems to be the only viable option for Singapore. This paper seeks to identify some of the issues and challenges in transitioning from a factor driven growth nation to one driven by productivity growth. The theoretical framework used (despite its limitations) in this paper is derived from Michael Porter's "The Competitive Advantage Of Nations" where the "innovation driven stage" is analogous to the “productivity driven" stage in this paper. Japan's post-war economic development, particularly the period of 1970 to 1980, was studied in this paper. According to Michael Porter, Japan reached the innovation driven stage by the late 70's. A study of the period prior to that stage would enable us to draw some feedback about the mechanisms that facilitated this economic transformation. In comparing the components of TFP between the 2 countries, it was found out the share of technical progress is much lower as compared to Japan. One conclusion drawn from Japan's experience would be that education would contribute more to TFP growth before technical progress takes over to be the main driving force. It seems that based on the comparison with Japan, we have most of the attributes required for transforming Singapore into a productivity driven nation. One serious shortcoming however, is the lack of indigenous technology to launch Singapore into the next stage of growth. Subsequently, a survey of 7 industrialised nations was carried out to identify the common attributes that seemed to have contributed to the success (developed status) of these nations. These attributes were then compared with the attributes that Singapore appears to have. Short term tasks, medium term goals and long term challenges were then identified. Nevertheless, the long term challenges would lie in the deepening of our technological base. A short case study of Switzerland was carried out to draw possible lessons and implications for Singapore. The Strategic Economic Plan was evaluated in the concluding chapter after identifying the challenges for the next stage of growth. The paper concludes with the notion that Singapore would be able to reach the status of developed nations with the presumption that external (uncontrollable) conditions do not turn against her and the active promotion of innovation activities in the future. The task of this paper lies only in the identification of the issues and challenges that will faced by Singapore in the future. Further research should be carried out to examine the strengthening of technological capability for now and the future.