Growing pains in growing fairly

Dear Dr Tan Khee Giap,

I refer to your 4 Jan 2012 Straits Times article.

By comparing Singapore’s average GDP growth of 9.3% from 1987 to 1997 and 5.5% from 1998 to 2008 with Hong Kong’s average GDP growth of 6% from 1987 to 1997 and 3% the following decade; you concluded that the Singapore government was able to squeeze more growth than Hong Kong through positive intervention.

The 9.3% Singapore GDP growth should be from 1986 to 1996 while our 5.4% growth should be from 1997 to 2007. The corresponding figures for Hong Kong should be 5.8% and 3.8% respectively.

Table 1 below lists Singapore’s 10-year average GDP growth rates in the 1980s and the 1990s. It appears that you have chosen the 10-year period featuring our highest average GDP growth rate. If you have chosen say 1982 to 1992 for example, our average growth rate of 7.3% wouldn’t be much higher than Hong Kong’s 6.7%.

Decade Annualised SG GDP growth rate Annualised HK GDP growth rate
1981-1991 7.3% 6.3%
1982-1992 7.3% 6.7%
1983-1993 7.6% 6.7%
1984-1994 7.8% 6.3%
1985-1995 8.6% 6.5%
1986-1996 9.3% 5.8%
1987-1997 9.0% 5.0%
1988-1998 7.7% 3.5%
1989-1999 7.3% 3.5%
1990-2000 7.2% 3.9%
1991-2001 6.4% 3.4%

Table 1: 10-year average GDP growth rates

Our comparison with Hong Kong cannot be based on the arbitrary selection of time periods that favour us over them. We can instead consider all years when records are available which is from 1961 to 2010 as shown in Graph 1 below:

Graph 1: GDP, per capita GDP growth from 1961 to 2010

From Graph 1, we see that Singapore’s and Hong Kong’s GDP growths are very close right up to around 1988. From then on, Singapore’s GDP started to grow much more rapidly than Hong Kong’s. However, when we compare per capita GDP growth, the difference is much narrower.

Graph 2 below shows that the growth in Singapore population took on a higher trajectory from around 1986. Thus, higher population growth supported higher GDP growth, but the higher GDP had to be spread over a larger population resulting in much less impressive growth in per capita GDP.

Graph 2: Population growth from 1961 to 2010

Graph 3 below focuses on comparing per capita GDP. We see that much of the widening of per capita GDP between Singapore and Hong Kong occurred between 1993 and 1997.

Graph 3: Per capita GDP growth from 1961 to 2010

There are therefore two things we should pay attention to: 1988 when our GDP started to climb more rapidly due to more rapid population growth and between 1993 and 1997 when most of the gap in per capita GDP occurred.

Period Annualised SG per capita GDP growth rate Annualised HK per capita GDP growth rate
1961-1988 6.5% 6.2%
1988-1993 5.8% 3.8%
1993-1997 4.9% 1.9%
1997-2010 3.0% 2.7%

Table 2: Per capita GDP growth rates

Table 2 above shows that from 1961 to 1988, Singapore’s 6.5% average per capita GDP growth rate is quite close to Hong Kong’s 6.2%. Between 1988 and 1993, the per capita GDP growth rates started to deviate but the widest gap occurred between 1993 and 1997. After 1997, Singapore and Hong Kong per capita GDP growth rates became quite close again.

The evidence suggests that the portrayal of Singapore having done much better than Hong Kong is false considering that for 40 out of 49 years, Singapore and Hong Kong per capita GDP growth rates were similar. The Hong Kong economy kept pace with ours right from the start and after 1997. It didn’t keep pace only in the decade leading to 1997. Therefore, instead of seeing 1997 as the year when the Hong Kong economy received a much needed boost from China, we should see the decade leading to 1997 as the years when the Hong Kong economy suffered.

Table 3 below was taken from the paper “International migration statistics and data sources” by Amy Sim from the City University of Hong Kong. It shows a significant increase in Hong Kong emigration in the decade leading to 1997. Perhaps uncertainty over the future of Hong Kong led to increased emigration during this period. It is not unreasonable to think that a significant proportion of this emigration comprised higher income earners, leaving behind a less competitive Hong Kong economy.

1987 1988 1989 1990 1992 1996 1997
30,000 45,800 42,000 62,000 66,000 40,300 30,900

Table 3: Hong Kong migration figures, 1987 – 1997

The paper “The Impact of New Immigration on Native Wages: A Cross-occupation Analysis of a Small Open Economy” by Heiwai Tang from Tufts University and Stan Hok-Wui Wong from Chinese University of Hong Kong reported an increase in Chinese immigration since 1993 of which 70% comprised females who are mainly wives of Hong Kong citizens. Again, it is not unreasonable to think that this group contributed more to population numbers than to GDP numbers.

The paper “A critical analysis of population dynamics and their implications on the future compositions of households in Hong Kong SAR” by the Hong Kong University also reported a jump in immigration numbers in the years 1993, 1994 and 1995.

The evidence suggests that in the decade leading to 1997, the Hong Kong economy didn’t keep pace with ours because of political uncertainty. Graph 4 below compares Singapore’s and Hong Kong’s per capita GNI post-1997. It shows that once confidence returned to Hong Kong, Hong Kong per capita GNI kept pace with ours without them having to resort to grow-at-all-costs.

Graph 4: Worldbank per capita GNI (PPP)

Asking whether our economy has expanded too fast is asking the wrong question. The right question to ask is what is the best way to grow our economy. The first step towards answering that question is to realise that ultimately, it is per capita GDP that matters rather than GDP itself. A policy aimed at expanding GDP by expanding population is like enlarging the pie while inviting more people to take a bite. Everyone ends up getting the same bite as before. As far as per capita GDP growth is concerned, apart from the decade leading to 1997 when Hong Kong was faced with political uncertainties, there is no evidence that Singapore managed to squeeze more growth than Hong Kong did. If Hong Kong can grow per capita GDP as quickly as us without resorting to massive population increases, surely that is something worth trying?


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