Singapore is now an "advanced economy" along with the world's top countries like the United States and Japan, according to the International Monetary Fund's (IMF) latest semi-annual publication World Economic Outlook. Singapore is always cited as part of the "Asian Miracle" due to the fact that Singapore only takes thirty years to develop the "advanced economy". However the path is not straight forward, Singapore has passed through three different stages of economic development namely entrep6t trading, industrialisation and value-added production.
Singapore government plays an active and important role in the economy. Its interventionist economy policy heavily contributes to its astonishing growth since its independence in 1965. Now the government is focusing on enhancing infrastructures such as the nation-wide broadband telecommunication network and the 4-tier road system.
While Singapore economy is performing well, some growth theorists, notably Alwyn Young and Paul Krugman, warned that Singapore's growth would not sustain because it is based on mobilisation of resources rather than improvement in efficiency. However, there are other economists such as Bernhard Eschweiler and Rachel van Elkan believed that the outlook of Singapore is bright if total factor productivity factors are managed well.
The diverse perspectives of various growth theories are results of different assessment of total factor productivity (TFP) which is a measure of improvement in efficiency or productivity. The difference in assessment of TFP performance arises as a result of different definition of TFP, different methodologies employed and assumptions used, different data sets, and different period of time measured. Although different growth theories have different assessment of Singapore's outlook, all of them believe that TFP is essential for sustaining long-term economic growth.
It implies that Singapore should develop an environment to foster TFP growth in order to achieve long-term economic growth. The endogenous growth theory by Paul Romer emphasises the role of human capital in sustaining economic growth. According to his theory, formal education and on-the-job training are essential to economic growth, this coincides with the other theories in the sense that education and training are means of enhancing TFP.
The relationship of saving and economic performance is also reviewed. Neo-classical growth model states that high saving rate will increase the level of steady state per capita capital and per capita output.
These studies suggest that TFP should play an increasing role in economic growth because increases in factors of production are subjected to the law of diminishing returns of inputs. However, Singapore has a disadvantage: as Singapore approaches the world technology frontier, its opportunities of technology catch-up and its potential for further TFP growth from this source are exhausted.
While there has been heavily investment in human capital in Singapore through formal education and on-the-job training, a significant gap in educational attainment remains to be closed between Singapore and the industrial world. In addition, experience in number of other countries suggests that reducing distortions in the economy may serve to increase a country's TFP growth rate permanently by generating dynamic gains in efficiency.