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Putting Singapore’s GDP in perspective

Putting Singapore’s GDP in perspective

Furry Brown Dog 

Written by defennder

August 6, 2010 at 11:35 pm

Supporters of the ruling party and status quo are fond of citing Singapore’s GDP per capita, one of the highest in the world as evidence that its government has done well. Measuring economic success by GDP has many disadvantages as various other netizens have elaborated. I don’t intend to add to those, but in this post I will endeavour to show how this metric is flawed even without disputing that GXP (where ‘X’ refers to any of various national income accounting measures) measures the economic well-being a country’s people.

 In 1959, when the PAP first took power in Singapore, Singapore’s GDP per capita (US$2186) in constant 1990 USD (hence adjusted for inflation and PPP) was second only to Hong Kong’s (US$3027) and Japan (US$3554) in East Asia.  In this respect, Singapore was already ahead of all the countries in East Asia including China and Taiwan, and South Korea. This did not change when Singapore split from Malaysia in 1965, GDP per capita at US$2667 was highest in the region excluding Hong Kong (US$4825)  and Japan (US$5934). These figures are a far cry from the nominal US$500 GDP per capita in 1959 often cited by PAP supporters which ignores both PPP and inflation adjustment. Fast forward to 2008, Singapore’s GDP per capita has overtaken Japan (which was mired for a decade and has yet to recover) but still trails Hong Kong.

Secondly, it is misleading to use GDP per capita when comparing between countries because Singapore only comprises of a single city whereas larger nations have rural areas and smaller towns. A fairer standard of measurement would instead be between cities rather than countries adjusted for purchasing power. This gives rise to the measurement of gross metropolitan product (GMP) per capita , PPP. This measurement compares between cities and towns instead of between countries where the relative poverty of rural inhabitants would distort the measure of GDP per capita. Because PPP involves a routine measurement of a country’s consumer price levels, data is much harder to come by compared to nominal GDP.

The latest data I could find dates back to 2005. Singapore’s GMP per capita PPP when measured against other cities worldwide ranks only at 53rd out of 100 (many other cities above belong to the same country), whilst not a bad showing is far from its spectacular perch of 9th ranking if one considers ranking by country only. This is certainly nothing to crow about.

Lastly, GDP (per capita) suffers from the fatal flaw as a economic indicator because it does not subtract profits earned in Singapore but which is remitted back to foreign shareholders and foreign investors. It also ignores incomes sent back by Singaporean corporations overseas. A more appropriate measure would be gross national product (GNP), which measures national income and profits held by Singaporean firms and residents (citizens + PRs) only. The latest figures for 2009, show that Singapore’s GNP for that year was S$182.536 bn, compared to its GDP of S$265.057bn. In other words, total income and profits for 2009 earned by Singapore residents and firms is only a mere 69% of GDP; the remaining 31% is repatriated overseas.

How does this compare to other countries? Expressing GNP as  a proportion of GDP and ranking all the countries worldwide shows that Singapore is ranked only at 32nd place (figures appear to be dated 2007):

If you’re wondering how impoverished countries like Seychelles and Djibouti could rank above Singapore, remember we’re not talking about GDP or GNP (per capita) here as an absolute measure,  but instead GNP as fraction of GDP. Such a metric is a loose way of determining how much of economic growth is generated by local employees and firms, while netting out foreign contributions. Singapore doesn’t appear to fare particularly well in this category, which likely reflects its over-dependence on foreign-owned corporations (MNCs) and the lack of a strong local economy and comparatively minor contributions to national income of Singapore firms which have ventured overseas.

Update 7th Aug: A commenter named Jason pointed out that the numbers seem off because it only lists 3 countries worldwide as having greater GNI than GDP, which doesn’t make sense since total world GNI and GDP should theoretically equate. So I went to look for another more reliable source and settled on World Bank figures here. More specifically I used GNI Atlas and GDP current US$.

Using data for both GNI and GDP for the year of 2007, and excluding countries for which no GDP and/or GNI figures are provided (for 2007), Singapore ranks about 138th place out of 183 countries worldwide for GNI/GDP:

Here’s the raw data which I used for those who want to see the full ranking. So while the earlier data is off, my conclusion doesn’t change, since Singapore’s ranking according to World Bank figures is even worse.

Update 2: Just to make sure that Singapore’s low ranking was consistent, I counter-checked with another source, this time from the UN National Accounts Main Aggregates Database. Singapore was ranked at 178th out of 211 countries for 2007 GNI/GDP.

PS. The GNI data from the World Bank uses a special Atlas method which smoothens out exchange rate fluctuations and inflation over a few years, whilst the GDP figures are stated in USD terms for the exchange rate of a single year. This may account for some of the discrepancies observed. So like many things in economics, it serves as a reasonable first approximation, but certainly far from ideal. Cross-country comparisons are difficult, I’ll grant you that.

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