Beyond “Miracles” and Total Factor Productivity: The Singapore Experience

Abstract

Neither neoclassical nor new growth theories have satisfactorily explained the growth phenomenon observed in East Asia. Paul Krugman's depiction of East Asian economies as sausage makers based on Alwyn Young's measures of total factor productivity (TFP) has brought about a contrarian view to the East Asian miracle. The prognosis from dismal TFP growth implies that economies like Singapore will slow down as its reserves of factor inputs are exhausted. We observe that adaptative factor improvements often missed out in measure ment of factor productivity may have led to an oversimplification of growth by perspira tion rather than by inspiration. A more insightful reworking of growth data in Singapore suggests that Krugman fs thesis may have been overly pessimistic. Comparisons drawn with Hong Kong in particular are misleading as the two city-states are quite unlike in many aspects. In the final analysis, Singapore's growth prospects can be maintained. Higher factor productivity and a more matured economy underpinned by continued sound economic policies and regional stability are the most crucial considerations.