6. Total Factor Productivity and Resource Reallocation 135 1. Measurement of Total Factor Productivity Growth
6.2.2. TFP growth estimates: Empirical findings
TFP growth rates are estimated for each manufacturing industry and the aggregate economy. Capital stock data were modified to take into account capacity utilization rates. Capacity utilization rates generally fluctuate over time because of changes in demand conditions, seasonal variations, inter- ruptions in the supply of intermediate products, or breakdown of machinery (OECD, 2001a, p. 74). Changes in capacity utilization rates, in turn, affect the flow of capital services. Capacity utilization rates can be calculated by applying econometric methods or by using a proxy for capacity utilization rates, such as horsepower equivalent of electricity use. But due to unavail- ability of reliable data for Singapore, capital stock series are detrended by dismantling the business cycle component of capital stocks using the Hodrick–Prescott filter.
TFP growth estimates are presented in Figure 6.2 and Table 6.3. In addition, the appendix displays translog indices of capital, labor, and pro- ductivity growth for each industry. These indices are set as 1 for the year 1985. The figures in the appendix present the estimates computed using real value-added values deflated by the SMPI. Figure 6.2 shows that TFP growth rates for manufacturing and the aggregate economy are very similar for the entire period. The figure also shows the improving trend in TFP growth rates in the post-1985 era. Table 6.3 presents in detail the TFP growth rates for each sub-period. Panels A and B present the findings for manufacturing industries using two different deflators for real value-added. Panel C com- pares the figures for the manufacturing sector and the aggregate economy.
-0.25 -0.20 -0.15 -0.10 -0.05 0.00 0.05 0.10 0.15 0.20
1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999
%
Manufacturing Aggregate economy
Fig. 6.2. TFP growth rate for manufacturing and the aggregate economy (1965–2000).
Source: Author’s calculations.
Table 6.3. Average Annual TFP Growth rates by Industry and Period (Percent).
1965–
1978
1979–
1985
1986–
1997
1998–
2002
1965–
1985
1986–
2002
1965–
2002 A. Estimates based on real value-added computed by GDP deflator for the
manufacturing sector
Food −2.0 −2.9 −0.6 −9.4 −2.3 −3.2 −2.7
Tex −0.6 −2.3 3.5 −3.0 −1.2 1.6 0.1
Wear −4.5 −3.7 −3.3 8.6 −4.2 0.2 −2.3
Leat −8.8 −1.5 3.1 −7.0 −6.3 0.1 −3.5
Wood −2.0 −6.4 2.2 −5.3 −3.5 0.0 −1.9
Furn −8.2 4.2 −0.9 0.8 −4.0 −0.4 −2.4
Paper −2.5 2.1 −1.4 −11.1 −1.0 −4.2 −2.4
Pub −3.1 0.0 2.1 −9.0 −2.1 −1.2 −1.7
Chem −0.9 −4.9 0.0 13.9 −2.3 4.1 0.6
Petr −12.9 −10.9 0.4 6.8 −12.2 2.3 −5.7 Rub −17.1 −3.1 0.6 −3.6 −12.4 −0.7 −7.2
Non-met −3.9 −6.6 −0.5 −12.5 −4.8 −4.0 −4.5
Met −12.7 −9.3 −3.9 −4.5 −11.6 −4.0 −8.2 (Continued)
Table 6.3. (Continued) 1965–
1978
1979–
1985
1986–
1997
1998–
2002
1965–
1985
1986–
2002
1965–
2002
Fab-met −1.7 −3.4 0.1 −4.2 −2.2 −1.2 −1.8
Mach −2.3 −6.8 −1.8 6.3 −3.8 0.6 −1.9
Elec −7.2 −1.0 −0.6 −4.3 −5.1 −1.7 −3.6
Prec −2.3 3.9 4.1 2.2 −0.2 3.6 1.5
Tran 0.5 −1.2 0.9 −4.8 −0.1 −0.8 −0.4
B. Estimates based on real value-added computed by SMPI
Food −1.9 0.9 0.8 −7.9 −1.0 −1.7 −1.3
Tex 0.2 2.6 5.7 0.2 1.0 4.1 2.4
Wear −3.8 1.2 −1.2 11.8 −2.1 2.6 0.0
Leat −8.0 3.4 5.2 −3.9 −4.2 2.5 −1.2
Wood −1.3 −1.5 2.2 −5.4 −1.3 −0.1 −0.8
Furn −7.4 9.1 −1.0 2.0 1.9 −0.1 −1.1
Paper −1.8 7.0 −0.1 −11.1 1.2 −3.4 −0.9
Pub −2.3 4.9 3.3 −7.7 0.1 0.1 0.1
Chem 0.0 −2.9 3.3 14.4 −1.0 6.5 2.4
Petr −12.8 −16.2 8.1 −0.8 −13.9 5.5 −5.2 Rub −16.1 −1.0 1.2 −3.5 −11.1 −0.2 −6.2
Non-met −3.2 −1.7 0.4 −6.6 −2.7 −1.6 −2.2
Met −12.0 −4.4 −1.7 −2.6 −9.4 −1.9 −6.1 Fab-met −1.3 0.4 0.1 −0.9 −0.7 −0.2 −0.5
Mach −2.0 −3.0 −1.1 6.5 −2.3 1.1 −0.8
Elec −5.1 −0.4 5.1 −1.2 −3.5 3.2 −0.5
Prec −1.9 7.7 5.5 2.2 1.3 4.5 2.8
Tran 0.9 2.6 0.1 −6.1 1.5 −1.7 0.0
C. Estimates for the manufacturing sector and the aggregate economy
Manufacturing −3.8 0.1 3.2 −3.0 −2.5 1.4 −0.8
Economy −4.2 0.6 0.8 0.5 −2.6 0.7 −1.1
Source: Author’s calculations.
Average TFP growth rate of the manufacturing sector in the post-1985 era (1.4 percent) surpassed that of the pre-1985 era (−2.5 percent). The same thing also holds for the aggregate economy (0.7 and−2.6 percent, respec- tively). These findings indicate a remarkable improvement in TFP growth
performance between two periods from negative to moderately positive figures. One may argue that these positive figures are still low.8It is true that in international comparisons these figures are relatively low. However, the magnitude and the sign of the increase in TFP growth are remarkably high by any standard.
At the industry level, superior TFP growth performances of chemicals and precision equipment industries in the post-1985 period are noticeable.
Electrical and electronic machinery industry also demonstrates a significant TFP growth rate. It is important to note that, among the figures for indi- vidual industries in Table 6.3, those in Panel B are much more reliable than those at Panel A since it deflates all industries’ value-added series using the same deflator (manufacturing GDP deflator). Whichever the deflator used, Table 6.3 reveals that there is a general tendency for TFP growth perfor- mance of individual industries to improve from the pre-1985 period to the post-1985 period. This can also be observed from the indices of technical change by industries in Appendix Table A1.3. The large improvement in manufacturing TFP growth is led by TFP growth performances of chem- icals, precision equipment, electrical and electronic machinery industries, disregarding the textiles industry. Abnormal TFP growth figures for the post-crisis years (1998–2002) are also noteworthy.
The remarkable improvement in the TFP growth rates in the post-1985 era is important in the sense that the government set as a priority in its industrial policies the upgrading of technology and gains in productivity via coordinated programs run by EDB, SPRING (PSB prior to 2002), and MTI. Of much interest is PSB, which was given a target of achieving an annual TFP growth rate of 2 percent at the onset of its establishment. This was a response to strong criticism by some influential studies that found zero TFP growth for Singapore over decades of rapid growth and criticized Singapore’s growth which they found to result almost entirely from factor accumulation (Young, 1992; Kim and Lau, 1994).
8Wilson and Peebles (2005) argues that the official Singapore view towards the relatively low-TFP growth rates reflects the small indigenous manpower base and the lack of local industrial entrepreneurship but also the ignorance of these by the government. This seems to support the government’s view that Singapore is not yet a developed country, as discussed in Wilson (2000). The government’s view is such that there are strong reasons to believe that TFP growth will improve in the near future and expects past investments in education and infrastructure to bear fruits.
The finding that TFP growth rates improved in the post-1985 era relative to the pre-1985 era matches conclusions by various studies whose findings are presented in Section 6.2.1. What is of interest here is not the magnitude but the implications of those figures for different periods. The aim of the analysis in this chapter is not to calculate TFP growth rates and compare with other studies. TFP growth estimates are necessary in the forthcoming analysis which investigates the impact of resource reallocations of TFP growth.