Dual Economy Thesis

These activities boomed between 20 and have now collapsed.In the boom, they did not seem to boost the welfare of ordinary Singaporeans as much as the GDP growth numbers implied, and they are not hurting Singaporeans very much on the way down, either.Our back-of-the-envelope estimates suggest that roughly half of the economy is foreign.Interestingly, the parts of the economy that are currently in free fall — manufacturing and key parts of finance — are largely foreign.Local economist Manu Bhaskaran presciently explained so back in May 2009: We have one part of the economy that, judging by ownership and employment, is largely foreign and another part largely Singaporean.For example, manufacturing is largely foreign — MNCs produce the bulk of exportable manufactured goods and a huge fraction of the workforce comprises foreign workers.External demand has been the key growth driver over the last few years, with domestic demand remaining relatively sluggish.

For example, retail sales were down 3.4% compared to a year earlier, likely attributable to a much slower growth in consumer spending (local sector) as compared to export growth (foreign sector).

This suggests that the changes could be more structural – driven by policies capitalizing on globalization – than just cyclical in nature.

This contrasts quite noticeably with the experience of the early 1990s boom when domestic demand played a much more significant role.

The government’s recent decision to bring in 100,000 foreign workers may be seen as attempt to largely offset the huge exodus of foreign workers back in 2009, which left Singapore’s unemployment rate largely untouched.

The foreign sector may be viewed as a machine which is now starting to rev up with China assuming the place of export destinations instead of Western nations.

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