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Why Singapore’s stellar GDP per capita figures are unimpressive in context

with 6 comments

Update: Amended the title just to be more specific with the content of the article.

Some time ago I wrote this post explaining why I felt that Singapore’s high GDP per capita ranking is unexceptional when put into context. It’s still worth a read. The main gist of the argument (more specifically the 2nd point) is that Singapore’s GDP per capita  when compared to numerous other cities does not rank amongst the top in the world. The obsession with GDP per capita, is understood to have reached fever pitch when Singapore was judged to have reached a Swiss standard of living simply by attaining a comparable GNP per capita with Switzerland’s in 1999. For example, Matt Miller of the Washington Post gushed over Singapore’s GDP per capita in a recent op-ed here.

A recent publication by an American think tank seems to support this argument. The report argues that the US is more economically developed than much of Europe simply because more of their population is packed into mega-cities:

The United States, it turns out, actually derives more economic benefit from its cities than any other country on the planet. Roughly 83 percent of America’s GDP came from its “large cities,” defined as cities with a population of 150,000 or more. By contrast, China got 78 percent of its GDP from large cities and Western Europe got a surprisingly small 65 percent of its GDP from its large urban areas. Here’s the chart:

The report’s authors argue that the city gap between the United States and Europe account for about three-quarters of the difference in per capita GDP between the two. In other words, the United States appears to be wealthier than Europe because it has a greater share of its population living in large, productive cities.

All told, some 80 percent of Americans live in large cities, versus just 58 percent of Western Europeans.

In any case, the report also notes that America’s largest cities will continue to play an outsized role in the global economy. In 2025, the report predicts, about 600 cities around the globe will account for 60 percent of the world’s GDP.

So what does this tell us? It means that if a country has more cities and a larger proportion of its people residing or packed in mega-cities, it is expected that the country would enjoy stronger economic growth. Taken to extremes, what happens if your country consists of just one mega-city (ie. a city-state)? The answer is that you would enjoy stellar high GDP per capita figures.

To illustrate, Monaco, a sovereign city-state located in Europe, ranks above Singapore for GDP per capita (PPP). See here for the list provided by Wikipedia. So do Luxembourg, Bermuda and Liechtenstein, all very small states (though Bermuda is officially British territory). In fact, from the list of the top 20 countries with the highest GDP per capita in the world (referring to the CIA World Factbook’s list here), half of them are recognised as small dependencies and states.  This fact itself takes away a large chunk of the credit for high GDP per capita often associated with foresight and planning on the part of Singapore’s policy makers. In other words it makes little sense to compare a country like Singapore to Malaysia when the latter is so much larger than Singapore with plenty of rural areas.

Of course on the other hand, if a large country such as the United States enjoys high GDP per capita despite being much larger, that should count as much more of an achievement right?

Just to note, writer Ng Kok Lim makes the same point here.

Written by defennder

May 10, 2012 at 12:00 AM

6 Responses

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  1. FBD

    Unfortunately, your lacksaidical the economic arguments actually shows that Singapore GDP is very impressive even on city vs city basis.

    For economics, your article hardly assists in your economic arguments.

    It would be better for you to take Paul krugman who is very neo Keynesian.
    although , the basic problem remains. he is more keynesian than keynes in his own writings

    theonion

    May 10, 2012 at 9:37 AM

  2. There’s another factor I didn’t mention, such as Singapore location along major shipping lines between the East and West. How many other city states share that attribute? Or that Singapore’s economic achievements since independence are largely the same with other East Asian economies.

    The important to note is not whether something is impressive, but whether such a phenomena can be explained or understood better when put into context rather than blindly attributing it to a God-of-the-gaps argument.

    Having said that, this doesn’t mean that Singapore has little else to boast of. Singapore has one of the lowest infant mortality rates in the world, pretty much affordable health care, very low crime rates, home ownership rates etc. This part just addresses the often trutted out argument on GDP per capita.

    Also I note that you didn’t actually address the arguments at all. Have another go.

    defennder

    May 10, 2012 at 10:15 AM

  3. […] Where we read: singapore gdp […]

  4. Hello. What is Singapore’s debt to GDP ratio? What is the inflation rate? And of course, what is the birth rate? And rather than focus on the locale of the per capita that forms the denominator of the fraction in which the GDP figures, that is, that X percentage live in the city as opposed to rural, what I really want to know is what is the actual distribution of GDP? What happens to the distribution in times of deflation? Inflation? When we use GDP per capita as our measure of ‘health’ then each child not born concentratges the number, but each child born dilutes it. Inflation increases for each child born, but the debt also is lightened by that same amount.

    They say that crime goes down as population goes down, pretty simple. Abortion/contraception kills some bad guys. And some saints.

    thewhitelilyblog

    May 19, 2013 at 6:39 PM

  5. I guess what I like about this post is that it questions the use of the GDP as an indicator of economic health (is it Keynesian, right?) by pushing the analysis to its extreme, ‘what if there were just one big city in a country, then your GDP would kick butt,’ etc. Because we know as far as the quality of life for us sheep goes, that would not better our situation and it would probably worsen it. There’s a trap in the use of the GDP, it masks something, but I don’t know what.

    thewhitelilyblog

    May 19, 2013 at 6:43 PM

  6. Thank you very much for your informative and elaborate analysis.

    Giang Nguyen

    August 23, 2013 at 2:29 PM


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