Third Asia KLEMS Conference 12 13 August 2015

Third Asia KLEMS Conference 12 -13 August 2015 Structural Change and Productivity Growth in Asian Countries: Empirical Evidence and Singapore’s Experience Dr. Vu Minh Khuong, Associate Professor LKY School of Public Policy, National University of Singapore

Outline n Structural change and economic growth in Asian countries n The case of Singapore n Policy implications 2

Outline n Structural change and economic growth in Asian countries n The case of Singapore n Policy implications 3

Measures of structural change n 4

Effective structural change (ESCI) by Country: Summary statistics 5

Structural change patterns (1) 6

Structural change patterns (2) 7

Structural change patterns (3) 8

Structural change patterns (4) 9

Structural change and growth: The Case of Korea and the Philippines Effective Structural Change ALP Growth 5. 0% 8. 0% 4. 5% 6. 0% 4. 0% 3. 5% 3. 0% Korea 2. 5% Philippines 2. 0% 1. 5% 2. 0% Korea Philippines 0. 0% -2. 0% 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 0. 0% -6. 0% 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 -4. 0% 0. 5% 10

Structural change and growth: Empirical evidence (1) y(t)=ALP growth LSDV y(t)=GDP per capita growth GMM LSDV y(t)=Average wage growth GMM LSDV GMM (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) 0. 078 -0. 098 -0. 532 -0. 584 -0. 617** -1. 480* -0. 350 -0. 386* -0. 525 -0. 790 -0. 588* -0. 663** (0. 335) (0. 598) (0. 344) (0. 368) (0. 287) (0. 870) (0. 220) (0. 202) (0. 450) (1. 020) (0. 315) (0. 307) 0. 045 0. 040 0. 197** 0. 211** 0. 243*** 0. 283*** 0. 411*** 0. 480*** 0. 143*** 0. 148*** 0. 203*** 0. 219*** (0. 037) (0. 039) (0. 086) (0. 087) (0. 062) (0. 071) (0. 052) (0. 058) (0. 039) (0. 057) (0. 058) 0. 642*** 0. 594*** 0. 583*** 0. 558*** 0. 204*** 0. 171*** 0. 233*** 0. 208*** 0. 787*** 0. 796*** 0. 977*** 1. 015*** (0. 066) (0. 144) (0. 147) (0. 066) (0. 059) (0. 061) (0. 058) (0. 096) (0. 098) (0. 145) (0. 140) Country FE Yes Yes Yes Time FE No Yes No Yes AR(2) test pvalue - - 0. 874 0. 767 - - 0. 051 0. 129 - - 0. 094 0. 123 0. 273 0. 321 - - 0. 283 0. 386 - - 0. 217 0. 250 - - 633 633 675 675 586 586 Income(t-1) y(t-1) ESCI Adj-R 2 N 11

Structural change and growth: Empirical evidence (2) y(t)=Employment growth LSDV y(t)=GDP growth GMM LSDV y(t)=TFP growth GMM LSDV GMM (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) -1. 220*** -0. 905** 0. 068 0. 162 -1. 120*** -1. 350 -0. 374** -0. 348* 2. 680*** 1. 100 -0. 133 -0. 227* (0. 207) (0. 389) (0. 208) (0. 215) (0. 282) (0. 875) (0. 187) (0. 181) (0. 567) (0. 733) (0. 156) (0. 129) y(t-1) -0. 104 -0. 099 0. 0158 0. 008 0. 253*** 0. 290*** 0. 383*** 0. 443*** 0. 944*** 0. 954*** 1. 003*** 0. 956*** (0. 068) (0. 069) (0. 155) (0. 150) (0. 062) (0. 073) (0. 040) (0. 052) (0. 016) (0. 015) (0. 011) (0. 012) -0. 341*** -0. 345*** -0. 274*** -0. 292*** 0. 211*** 0. 176*** 0. 253*** 0. 215*** 0. 451*** 0. 411*** 0. 379*** (0. 059) (0. 056) (0. 085) (0. 086) (0. 065) (0. 059) (0. 060) (0. 053) (0. 057) (0. 052) (0. 072) (0. 064) Country FE Yes Yes Yes Time FE No Yes No Yes AR(2) test pvalue - - 0. 038 0. 022 - - 0. 056 0. 167 - - 0. 288 0. 785 0. 215 0. 229 - - 0. 266 0. 376 - - 0. 974 0. 980 - - 674 674 675 675 564 564 Income(t-1) ESCI Adj-R 2 N 12

Outline n Structural change and economic growth in Asian countries n The case of Singapore n Policy implications 13

Structural change and growth: The Case of Singapore 14

The contribution to ALP growth by sector, 2000 -2012: Singapore vs. other Asian economies ALP growth Agriculture Mining Manufacturing Construction Utility Trade Transport Finance Community services Total services China 9. 1% 5. 2 6. 0 33. 3 7. 5 2. 4 12. 8 6. 3 11. 5 15. 0 45. 6 India 5. 2% 5. 2 1. 1 15. 4 9. 5 1. 3 20. 0 11. 4 23. 9 12. 2 67. 5 Country China-India Advanced economies Contribution by Sector (Total=100) Hong Kong 2. 7% -0. 1 0. 0 -3. 6 -1. 4 0. 3 44. 4 9. 5 47. 0 3. 9 104. 7 Singapore 1. 7% -0. 1 0. 0 23. 0 -1. 7 0. 0 30. 7 2. 3 36. 8 9. 0 78. 7 Korea, Rep. 2. 6% -0. 5 -0. 3 49. 8 -0. 3 2. 6 6. 2 9. 9 15. 8 16. 6 48. 5 Taiwan 2. 5% -0. 6 52. 9 -2. 4 0. 7 19. 4 4. 4 12. 7 13. 5 50. 0 Japan 0. 9% -2. 7 -1. 3 38. 9 -22. 9 -6. 5 6. 8 23. 0 7. 5 57. 3 94. 6 ASEAN Brunei -0. 8% -0. 2 109. 3 12. 5 -2. 3 -0. 1 -3. 4 -2. 2 -3. 2 -10. 4 -19. 3 Cambodia 4. 4% 16. 5 1. 8 25. 6 7. 9 0. 9 16. 0 8. 4 9. 7 13. 0 47. 2 Indonesia 3. 5% 8. 5 -2. 6 22. 5 14. 7 1. 2 18. 6 15. 3 10. 2 11. 6 55. 7 Lao PDR 4. 6% 0. 0 0. 0 Malaysia 2. 1% 2. 6 -27. 6 17. 6 3. 1 2. 9 32. 3 13. 7 31. 2 24. 3 101. 5 Myanmar 9. 0% 0. 0 0. 0 Philippines 2. 2% 1. 6 3. 5 13. 4 4. 7 2. 5 20. 8 10. 9 29. 5 13. 0 74. 2 Thailand 2. 5% 3. 1 3. 7 33. 4 1. 8 4. 0 14. 3 10. 3 20. 2 9. 1 54. 0 Vietnam 48. 6 4. 4% 7. 0 0. 2 29. 7 7. 9 6. 7 22. 2 5. 4 9. 8 11. 2 South Asia Bangladesh 2. 5% 1. 7 1. 9 27. 6 11. 9 1. 6 18. 6 15. 6 4. 4 16. 8 55. 3 Nepal 1. 2% 19. 0 0. 7 -9. 8 4. 6 3. 0 -17. 6 28. 5 20. 8 50. 9 82. 6 Pakistan 1. 1% -10. 8 3. 3 46. 9 0. 3 -8. 4 17. 1 -0. 8 11. 0 41. 5 68. 8 Sri Lanka 4. 2% 5. 6 3. 8 14. 9 12. 7 2. 5 20. 4 18. 5 14. 4 7. 2 60. 5 15

The contribution to GDP growth by sector, 2000 -2012: Singapore vs. other Asian economies Country GDP growth Contribution by Sector (Total=100) Agriculture Mining Manufacturing Construction Utility Trade Transport Finance Community & social services Total services China-India China 9. 7% India 7. 0% Advanced economies 7. 7 7. 1 4. 9 -1. 3 32. 3 4. 1 7. 6 1. 9 2. 7 1. 1 14. 9 17. 2 7. 1 11. 0 8. 9 40. 0 13. 9 18. 7 44. 8 86. 9 Hong Kong Singapore Korea, Rep. Taiwan Japan ASEAN 3. 8% 5. 4% 3. 9% 3. 7% 0. 7% -0. 1 -1. 1 -2. 5 0. 5 0. 0 0. 2 3. 3 -0. 1 -1. 2 3. 9 32. 1 39. 5 -10. 4 16. 0 20. 4 -5. 0 -5. 9 6. 8 1. 6 2. 9 3. 2 0. 8 -50. 2 23. 1 -9. 8 13. 6 0. 9 37. 3 7. 4 27. 3 11. 2 14. 9 27. 8 29. 2 47. 9 19. 7 24. 6 15. 5 24. 0 7. 3 26. 2 24. 4 72. 8 83. 7 72. 8 70. 7 64. 8 153. 3 Brunei Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Thailand Vietnam South Asia Bangladesh Nepal Pakistan Sri Lanka 1. 5% 7. 6% 5. 3% 7. 1% 4. 7% 10. 5% 4. 7% 4. 3% 6. 9% 5. 8% 3. 8% 4. 3% 5. 4% -183. 0 25. 0 11. 0 16. 6 1. 7 72. 2 5. 4 2. 7 11. 4 2917. 5 2. 0 3. 3 5. 6 2. 8 1. 0 0. 3 4. 1 9. 7 -187. 4 18. 1 25. 7 18. 0 24. 8 0. 7 18. 0 28. 1 19. 8 -224. 8 15. 0 10. 0 14. 6 12. 2 1. 6 12. 8 3. 4 39. 0 0. 6 0. 7 0. 2 2. 1 0. 7 2. 7 4. 1 7. 5 -414. 7 19. 2 21. 0 23. 9 12. 7 19. 2 18. 5 20. 3 22. 5 -316. 1 7. 1 9. 6 3. 6 8. 7 2. 1 7. 5 10. 4 4. 8 -346. 5 15. 4 9. 6 8. 4 18. 2 0. 1 19. 2 20. 0 6. 7 -1183. 9 -2. 4 9. 2 16. 8 2. 4 15. 5 7. 4 14. 1 -2261. 2 39. 3 45. 0 56. 3 23. 8 60. 7 58. 1 48. 1 11. 2 11. 7 20. 6 10. 9 1. 4 0. 5 2. 8 4. 8 24. 9 8. 6 17. 1 15. 2 10. 1 3. 8 4. 1 25. 6 2. 3 0. 1 -1. 4 13. 7 34. 2 18. 3 15. 2 10. 9 17. 8 4. 3 11. 5 9. 0 5. 2 10. 2 11. 4 16. 5 18. 1 24. 0 50. 1 75. 2 56. 8 42. 1 16

Growth by sector: Singapore vs. Taiwan Indicator Singapore Taiwan GDP EMP ALP TOTAL 5. 4% 3. 7% 1. 7% 3. 7% 1. 2% 2. 5% Agriculture，hunting，forestry and fishing 0. 9% 7. 1% -6. 3% 0. 5% -2. 6% 3. 0% - -2. 6% -8. 4% 5. 9% Manufacturing 5. 2% 1. 5% 3. 7% 6. 4% 0. 9% 5. 5% Electricity, gas and water supply 3. 8% 2. 7% 1. 1% 2. 6% -0. 2% 2. 8% Construction 3. 3% 3. 2% 0. 0% -0. 4% 0. 1% -0. 5% Wholesale and retail trade, repair of vehicles, hotels and restaurants 5. 6% 3. 8% 1. 8% 3. 1% 1. 2% 1. 9% Transport, storage and communications 4. 0% 3. 4% 0. 6% 3. 1% 0. 2% 2. 9% Financial intermediation, real estate, renting and business activities 5. 3% 5. 6% -0. 3% 2. 5% 2. 8% -0. 2% …Financial intermediation 6. 3% Community, social and personal services 4. 8% 2. 3% 0. 1% Mining and quarrying 1. 5% 4. 9% -0. 1% 2. 5% 17

Singapore’s financial sector: key success factors n n Opportunities: the rise of Asia Strategy n n Positioning: Regional hub World-class infrastructure and labor force Top-notch business environment Execution n MAS The role of government: Regulating; Enabling; Stabilizing; and Legitimating ICT 18

Outline n Structural change and economic growth in Asian countries n The case of Singapore n Policy implications 19

Policy implications n n Structural change plays a important role in driving economic growth, especially in developing countries. The government can foster structural change through different policy channels: n n n n Openness (to trade and FDI); Investment incentives; Facilitation of movement of productive factors (labor, capital, land); Improvement of business environment and labor force quality; Knowledge acquisition and innovation; and Integration within the economy and coordination among government agencies. The government should pay a special attention to manufacturing, trade, and financial services -- the three most important sectors in driving economic growth. 20

Thank You! 21