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48
Economic Survey of Singapore Third Quarter 2017
CONCLUDING REMARKS
CONCLUDING REMARKS
INTRODUCTION
INTRODUCTION
FINDINGS
FINDINGS
Manufacturing and services are the
twin engines of growth in the
Singapore economy. Although they
share a close, inter-dependent
relationship, the development of
services globally has historically
depended more on the growth of the
manufacturing sector than vice
versa.
In view of the manufacturing sector’s strong backward linkages to the services sector, efforts to grow
highly-productive modern services under the Government’s Industry Transformation Maps will be
supported by the concomitant development of a globally-competitive manufacturing sector.
Every 100 new manufacturing jobs were
associated with 27 non-manufacturing
jobs created. By contrast, every 100 new
services jobs were associated with only 3
additional manufacturing jobs.
MANUFACTURING SERVICES
OTHER
SERVICES
INFORMATION &
COMMUNICATIONS
BUSINESS
SERVICES
FINANCE &
INSURANCE
The manufacturing sector was found to have stronger VA
spillovers to the services sector than vice versa. For every
$1 million of VA generated in the manufacturing sector,
$0.29 million of VA were produced in the services sector in
2013.
MANUFACTURING
($1 million increase)
WHOLESALE & RETAIL
ACCOMMODATION
& FOOD SERVICES
TRANSPORTATION
& STORAGE
$8,200
$127,400
$4,600
$16,400
$30,600
$81,400
$21,900
MANUFACTURING SERVICES
SERVICES MANUFACTURING
FEATURE ARTICLE
MANUFACTURING AND SERVICES
IN SINGAPORE’S ECONOMY:
TWIN ENGINES OF GROWTH AND
THEIR ASYMMETRIC DEPENDENCIES
49
FEATURE ARTICLE
1 The author would like to thank Yong Yik Wei for her useful comments, as well as the Department of Statistics (DOS), Economic Development Board
(EDB) and International Enterprise (IE) Singapore for their inputs to the study. All remaining errors belong to the author.
2 In 2016, the manufacturing sector comprised 19.6% of Singapore’s economy. As a comparison, the share of manufacturing in GDP was smaller in other
advanced economies such as the United States (11.7% in 2016) and United Kingdom (9.7%) (BEA, 2017; World Bank, 2017). Developed countries that
maintained a sizeable manufacturing presence in their economies included Ireland (36.7% of GDP in 2016), South Korea (29.3%) and Germany (22.6%).
EXECUTIVE SUMMARY
• Manufacturing and services are the twin engines of growth in the Singapore economy. Although they
share a close, inter-dependent relationship, the development of services globally has historically
depended more on the growth of the manufacturing sector than vice versa. This study examines whether
the asymmetric dependencies between manufacturing and services hold in Singapore, and how this
relationship has evolved over time.
• The manufacturing sector was found to have stronger value-added (VA) spillovers to the services sector
than vice versa in 2013. Specifically, for every $1 million of VA generated in the manufacturing sector,
$0.29 million of VA were produced in the services sector, particularly in knowledge-intensive professional
services such as regional/international headquarters and engineering services, and wholesale trade.
Notably, the chemicals and precision engineering clusters within the manufacturing sector contributed
the most economic spillovers to the services sector. On the other hand, for every $1 million of services
VA generated, $0.02 million of VA were produced in the manufacturing sector.
• Similarly, employment creation in the manufacturing sector was associated with greater employment
creation in the services sector than vice versa. Specifically, every 100 new jobs in the manufacturing
sector were associated with 27 jobs created in the services sector. Notably, jobs created in the biomedical
manufacturing and chemicals clusters were associated with the most number of services jobs created,
particularly in exportable services such as professional services and wholesale trade. By contrast, every
100 new services jobs were associated with only 3 new jobs in the manufacturing sector.
• Over time, the economic spillovers by both the manufacturing and services sectors have risen on the
back of a strengthening of their backward linkages with other sectors within the domestic economy.
Between 2000 and 2013, the indirect VA generated by the manufacturing sector rose by 2.2 per cent per
annum, while that generated by the services sector increased by 0.2 per cent per annum. Within the
manufacturing sector, the chemicals cluster saw the largest improvement in backward linkages (8.6 per
cent per annum increase in VA spillovers), followed by the precision engineering (4.6 per cent per annum)
and transport engineering (1.4 per cent per annum) clusters.
• In view of the manufacturing sector’s strong backward linkages to the services sector, efforts to grow
highly-productive modern services such as professional services, wholesale trade and finance &
insurance under the Government’s Industry Transformation Maps will be supported by the concomitant
development of a globally-competitive manufacturing sector.
1. INTRODUCTION
Manufacturing and services are the twin engines of growth in the Singapore economy (see ECS, 1986; EPC,
1991; CSC, 1998; ERC, 2003; ESC, 2010; CFE, 2017). With services accounting for 69.4 per cent of its Gross
Domestic Product (GDP) in 2016, Singapore is a predominantly services economy. Nonetheless, it continues to
have a strong manufacturing base.2 Over the medium term, the Government remains committed to maintaining
a globally-competitive manufacturing sector that contributes to around 20 per cent of the economy.
The views expressed in this paper are solely those of the author and do not necessarily reflect those of the
Ministry of Trade and Industry or the Government of Singapore.
1
50
Economic Survey of Singapore Third Quarter 2017
Traditionally, manufacturing and services share a close, inter-dependent relationship (see Britton, 1990;
Illeris, 1996; Daniels & Bryson, 2002; Kuan, 2016). However, their dependencies have also historically been
asymmetric – i.e., the development of services depends more on the growth of the manufacturing sector than
vice versa.
This study examines whether the asymmetric dependencies between manufacturing and services hold in
Singapore, and how this relationship has evolved over time. With the cluster approach adopted under the
Government’s Industry Transformation Maps (ITMs) (see CFE, 2017), it is also important to understand the
nature and extent of inter-sectoral linkages in order to maximise synergies across sectors.
The rest of the paper is organised as follows. Section 2 provides an overview of the literature on the relationship
between manufacturing and services, with a focus on their asymmetric dependencies. Section 3 highlights
the data sources and empirical methodology used to analyse manufacturing-services linkages in this study.
Section 4 examines the inter-dependencies between manufacturing and services, in terms of the value-added
(VA) and employment spillovers, at the broad sectoral level (i.e., manufacturing vs. services) as well as for the
more detailed manufacturing clusters and services industries. Section 5 discusses broad policy implications
and also provides concluding remarks.
2. LITERATURE REVIEW
The manufacturing sector has historically been viewed as having an important role in an economy because
of its strong inter-sectoral linkages that stimulate development in the rest of the economy (Cornwall, 1977;
Myint, 1980). This arises through backward linkages to sectors that the manufacturing sector draws inputs
from, and forward linkages to sectors that the manufacturing sector supplies inputs to (Hirschman, 1958).
Using input-output (IO) tables, Cornwall (1977) showed that the manufacturing sector had strong backward
linkages through its purchases of inputs from other sectors in the economy, and also strong forward linkages
given its role as a supplier of capital goods and new technologies to other sectors. Drawing on IO analysis
of France, Pilat and Wölfl (2005) estimated that 29 per cent of manufacturing workers contributed indirectly
to the production of non-manufacturing output (i.e., intermediate inputs to the rest of the economy). As a
comparison, 13 per cent of services workers contributed indirectly to the production of non-services output.
While manufacturing and services share a close relationship, their inter-dependencies have been noted to
be asymmetric. Early work by Galenson (1963) highlighted that the growth of manufacturing employment
generated a much larger employment in the services sector than vice versa. Subsequent extensions by Park
(1989) and Park and Chan (1989) showed that sustained employment and output growth in services depended
on the contemporaneous development of manufacturing activities. In a study of six advanced economies
(France, Germany, Netherlands, Spain, United Kingdom and United States) in the late 1990s, Gregory and
Russo (2007) illustrated that 24 to 31 per cent of employment created from an injection of demand in the
manufacturing sector flowed to the services sector.3 By contrast, services retained most of the employment
gains from an increase in demand in the services sector, with only 6 to 11 per cent of new jobs going to the
manufacturing sector. In general, the employment intensity (i.e., the number of economy-wide jobs created
from final demand) in the manufacturing sector was similar to that in the services sector, with some countries
(e.g., United States and United Kingdom) creating more jobs in the overall economy from manufacturing
demand than services demand. In Sweden, Andersson (2006) examined regional employment data and found
that even as manufacturing and services shared a propensity to co-locate, knowledge-intensive manufacturing
industries had a stronger influence on anchoring knowledge-intensive producer services employment than
vice versa. With manufacturing being a major purchaser of inputs from highly-productive modern services,
Guerrieri and Meliciani (2005) and Felipe et al. (2013) concluded that the ability of countries to develop these
services sectors was tied to the presence and structure of the manufacturing base.
3 In Gregory and Russo’s (2007) study, a broader definition of manufacturing that included agriculture, mining and quarrying, public utilities and
construction was adopted.
51
FEATURE ARTICLE
In Singapore’s context, Thangavelu and Tan (2008) studied employment linkages in the economy and found that
employment spillovers from manufacturing to services were more significant than in the reverse direction. For
the same increase in final demand, manufacturing created 1.6 times as many jobs as services in the combined
manufacturing and services sectors. Notably, the petrochemicals and electronics industries were found to
have high employment spillovers to the services sector. Within the services sector, commerce activities,
including marketing and wholesale & retail trade, benefited the most from an increase in final demand in the
manufacturing sector.
3. DATA AND EMPIRICAL METHODOLOGY
This study examines manufacturing-services linkages using the Department of Statistics’ (DOS) Singapore IO
Tables 2000, 2005, 2010 and 2013. Employment statistics are sourced from the Ministry of Manpower (MOM).
Broadly, Singapore’s IO Tables illustrate inter-sectoral linkages in the economy, and follow the notion that a
sector’s output is obtained by consuming inputs from other sectors. In turn, the output of the sector can also
serve as inputs to other sectors. In notational form, output
X
in Singapore can be expressed as the following:
M
S
Z
( )
X
=
𝑎
mm
𝑎
sm
𝑎
zm
𝑎
ms
𝑎
ss
𝑎
zs
𝑎
mz
𝑎
sz
𝑎
zz
(
=
)
M
S
Z
( )
=
AX
+
F
𝑓
m
𝑓
s
𝑓
z
( )
+
where manufacturing, services and others (i.e., agriculture & fishing, construction and utilities) are denoted by
M
,
S
, and
Z
respectively, and
𝑓
encapsulates the final demand generated by households and the government,
exports of goods and services, gross fixed capital formation and changes in inventories. The technical
coefficients in matrix
A
represent the amount of inputs from other sectors that is required by a sector in order
to produce a unit of the latter’s output. As an illustration,
𝑎
sm
refers to the intermediate services input that flows
to the manufacturing sector to support the production of one unit of manufacturing output.
Re-ordering the above notation gives the following expression:
X
= (
I
−
A
)-1
F
where
I
is the identity matrix, and (
I
−
A
)-1 is the Leontief Inverse Matrix where each coefficient in the matrix
denotes the total output that is generated from an increase in final demand in a sector in matrix
X
.
VA multipliers for the various sectors are then derived by multiplying the Leontief Inverse Matrix with the ratio
of total VA to total output for each sector. Similarly, the Leontief Inverse Matrix is multiplied with the ratio of
total employment to total output for each sector to obtain the employment multipliers for the various sectors.
An increase in final demand in a sector can generate VA and create employment within the sector (directly or
indirectly4), as well as in other sectors of the economy that it sources intermediate inputs from (i.e., through
backward linkages). In the subsequent analysis, the indirect VA multiplier of sector
x
is estimated as the VA
that is generated in other sectors (i.e., outside sector
x
) for an increase in VA (direct and indirect) in sector
x
.5
4 Second- and subsequent-order effects exist in the IO analysis of economic multipliers. For instance, an increase in final demand for sector x stimulates
production in sector y if the latter provides the former with intermediate inputs. This in turn further raises output in sector x if sector y draws inputs
from it.
5 The increase in the VA (direct and indirect) of sector x in turn arises through an increase in its final demand.
52
Economic Survey of Singapore Third Quarter 2017
4. RESULTS
Analysis at Broad Sectoral Level
Based on the 2013 IO Tables, the manufacturing sector was found to have stronger VA spillovers to the services
sector than vice versa (Exhibit 1). Specifically, for every $1 million of VA generated in the manufacturing sector,
$0.29 million of VA were produced in the services sector and another $0.04 million in the other sectors of the
economy (i.e., construction, utilities, and other goods producing industries). Conversely, for every $1 million
of VA generated in the services sector, $0.02 million of VA were generated in the manufacturing sector and
another $0.01 million in the other sectors of the economy.
Increase in VA: Manufacturing Services Others
Manufacturing $1m $290,500 $36,100
Services $20,900 $1m $14,100
Exhibit 1: VA spillovers generated for a $1 million increase in manufacturing/ services VA, 2013
Source: Estimates based on the Singapore IO Tables 2013
Notes: The increase in VA arises from an increase in final demand. The 'Others" category includes construction, utilities and other goods producing industries.
Exhibit 2 shows a more detailed breakdown of the VA spillovers to the various sectors generated by a $1 million
increase in VA in the manufacturing sector. As can be seen, growth in the manufacturing sector generated
significant spillovers to the business services (particularly knowledge-intensive professional services such
as regional/international headquarters6 and engineering services) ($127,400), and wholesale & retail trade
($81,400) industries.7
6 In 2013, 19.6% of the output of business representative offices and headquarters activities was tied to Singapore’s domestic manufacturing sector.
7 Spillovers to the wholesale & retail trade industry were largely driven by the wholesale trade segment. In 2013, Singapore’s manufacturing sector
demanded $10.2 billion of intermediate output from the wholesale trade segment, over 100 times the intermediate output sourced from the retail trade
segment ($99 million).
8 Nonetheless, for the same $1 million increase in VA, the manufacturing sector generated more indirect VA in the utilities ($28,100) and construction
($7,300) industries in 2013.
$127,400
$81,400
$36,100
$30,600
$21,900 $16,400 $8,200 $4,600
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
Business
Services
Wholesale
& Retail
Others Finance &
Insurance
Transport &
Storage
Info &
Comms
Other
Services
Accom &
Food
Source: Estimates based on the Singapore IO Tables 2013
Note: The “Others” category includes construction, utilities and other goods producing industries.
Exhibit 2: Indirect VA generated for a $1 million increase in manufacturing VA, 2013
Similarly, Exhibit 3 shows a breakdown of the indirect VA generated by a $1 million increase in VA in the services
sector. Notably, the most significant spillovers were observed in the “Others” category which comprised the
utilities ($8,600 of indirect VA) and construction ($5,400) industries.8 Of the $20,900 of VA spillovers to the
manufacturing sector, the precision engineering cluster derived the greatest benefit ($5,400), followed by the
general manufacturing ($4,700) and transport engineering ($4,200) clusters.
53
FEATURE ARTICLE
In terms of employment, job creation in the manufacturing sector was associated with greater job creation
in the services sector than vice versa (Exhibit 4). For every 100 new jobs in the manufacturing sector, 31 non-
manufacturing jobs were created in the overall economy, of which 27 were services jobs. By contrast, every 100
new services jobs were associated with only 5 additional non-services jobs in the economy, of which 3 were
manufacturing jobs.
Exhibit 3: Indirect VA generated for a $1 million increase in services VA, 2013
$14,100
$5,400
$4,700
$4,200
$2,600
$2,300
$1,800
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
Others Precision Eng Gen Mfg Transport Eng Electronics BMS Chemicals
Source: Estimates based on the Singapore IO Tables 2013
Note: The “Others” category includes construction, utilities and other goods producing industries.
Increase in Jobs: Manufacturing Services Others
Manufacturing 100 27 4
Services 3 100 2
Exhibit 4: Employment creation associated with an increase in 100 manufacturing/ services jobs, 2013
Source: Estimates based on the Singapore IO Tables 2013
Notes: The increase in 100 jobs arises from an increase in final demand. The "Others" category includes construction, utilities and other goods producing
industries.
Analysis at Detailed Manufacturing Clusters and Services Industries
Given that the manufacturing and services sectors are highly heterogeneous, it is important to disaggregate
the two broad sectors to better understand the extent to which individual manufacturing clusters and services
industries within the broad sectors generate economic spillovers and create jobs outside their clusters and
industries.
Reflecting the diversity in Singapore’s manufacturing sector, economic spillovers differed across the clusters
within the sector (Exhibit 5). Among the manufacturing clusters, chemicals produced the most VA spillovers
in the economy, with $1 million of chemicals VA associated with a $1.2 million increase in VA in the rest of the
economy. Notably, the indirect VA generated across the various services industries ($967,500) was nearly as
large as the VA produced in the chemicals cluster, with wholesale trade being a key beneficiary.9 The precision
engineering ($515,300), transport engineering ($372,000), general manufacturing ($364,000) and electronics
($275,800) clusters also generated healthy VA spillovers to the other industries in the economy. By contrast,
biomedical manufacturing had weaker linkages within the domestic economy, with most of the economy-wide
VA generated from its growth (91.1 per cent) retained within the cluster.10
9 Wholesale trade accounted for half of total intermediate services inputs to the chemicals cluster. The refineries and petrochemical plants in the
chemicals cluster are supported by crude oil and chemicals trading, where trading companies are engaged to competitively source feedstock and
efficiently market the cluster’s end-products to customers.
10 Most of the inputs to the production of pharmaceuticals and biological products in the biomedical manufacturing cluster are imported. Additionally,
as the products are primarily produced for export, with a smaller proportion of the products being used as intermediate inputs to other manufacturing
clusters, there are fewer second- and subsequent-order effects on the economy as compared to the other manufacturing clusters.
54
Economic Survey of Singapore Third Quarter 2017
Manufacturing Cluster Own Cluster Rest of
Economy
Rest of
Manufacturing Services Others
Electronics $1m
(78.4%)
$275,800
(21.6%)
$26,200
(2.1%)
$210,100
(16.5%)
$39,500
(3.1%)
Chemicals $1m
(44.7%)
$1.2m
(55.3%)
$94,900
(4.2%)
$967,500
(43.2%)
$177,000
(7.9%)
Biomedical Manufacturing $1m
(91.1%)
$97,500
(8.9%)
$6,300
(0.6%)
$84,300
(7.7%)
$6,800
(0.6%)
Precision Engineering $1m
(66.0%)
$515,300
(34.0%)
$50,600
(3.3%)
$437,000
(28.8%)
$27,700
(1.8%)
Transport Engineering $1m
(72.9%)
$372,000
(27.1%)
$49,900
(3.6%)
$301,700
(22.0%)
$20,400
(1.5%)
General Manufacturing $1m
(73.3%)
$364,000
(26.7%)
$27,900
(2.0%)
$294,800
(21.6%)
$41,400
(3.0%)
Exhibit 5: VA spillovers generated for a $1 million increase in manufacturing VA by manufacturing cluster, 2013
Source: Estimates based on the Singapore IO Tables 2013
Notes: The “Others” category includes construction, utilities and other goods producing industries. The numbers in parenthesis denote the share of VA that is
generated in the overall economy from an increase in VA in the manufacturing cluster. The figures for “Rest of Manufacturing”, “Services” and “Others” may
not sum to that of “Rest of Economy” due to rounding.
In terms of jobs, the manufacturing clusters also generated healthy spillovers to the rest of the economy,
particularly in the various services industries (Exhibit 6). The creation of 100 jobs in each manufacturing cluster
was associated with the creation of 19 (for general manufacturing) to 117 (for biomedical manufacturing11) jobs
in the broader economy. Notably, job creation in the biomedical manufacturing, chemicals and electronics
clusters was associated with a significant number of jobs created in the various services industries (94, 58 and
38 services jobs respectively for every 100 manufacturing jobs). These included jobs in the business services
and wholesale & retail trade industries.
11 The biomedical manufacturing cluster generated weaker VA spillovers as previously illustrated. Nonetheless, as the cluster is highly productive (i.e.,
requiring fewer workers per unit of VA generated), when normalised by jobs created in the cluster, each biomedical manufacturing job was associated
with a larger number of jobs created in the overall economy. In 2016, nominal VA per worker in the biomedical manufacturing cluster was $732,100,
much higher than that in the overall economy ($111,800).
Manufacturing Cluster Own Cluster Rest of
Economy
Rest of
Manufacturing Services Others
Electronics 100
(64.4%)
55
(35.6%)
8
(5.3%)
38
(24.5%)
9
(5.7%)
Chemicals 100
(56.8%)
76
(43.2%)
9
(5.2%)
58
(32.8%)
9
(5.2%)
Biomedical Manufacturing 100
(46.0%)
117
(54.0%)
11
(5.3%)
94
(43.4%)
12
(5.3%)
Precision Engineering 100
(75.8%)
32
(24.2%)
4
(2.8%)
26
(19.4%)
3
(2.1%)
Transport Engineering 100
(79.4%)
26
(20.6%)
5
(4.0%)
19
(14.9%)
2
(1.7%)
General Manufacturing 100
(83.8%)
19
(16.2%)
2
(1.6%)
15
(12.4%)
3
(2.2%)
Source: Estimates based on the Singapore IO Tables 2013
Notes: The increase in 100 manufacturing jobs arises from an increase in final demand in the manufacturing cluster. The “Others” category includes
construction, utilities and other goods producing industries. The numbers in parenthesis denote the share of employment that is generated in the overall
economy in line with an increase in 100 jobs in the manufacturing cluster. The figures for “Rest of Manufacturing”, “Services” and “Others” may not sum to
that of “Rest of Economy” due to rounding.
Exhibit 6: Employment creation associated with an increase in 100 manufacturing jobs by manufacturing cluster, 2013
55
FEATURE ARTICLE
As for services, much of the economic spillovers generated was found to accrue more to the various services
industries rather than to the manufacturing sector (Exhibit 7). In particular, manufacturing only accounted for
0.5 per cent (finance & insurance) to 4.6 per cent (accommodation & food services) of the economy-wide VA
that was generated from the growth of the different services industries. Among the services industries, the
accommodation & food services industry had the largest VA spillovers to the rest of the economy ($556,100) for
a $1 million increase in VA, as it drew significant inputs from the real estate, food manufacturing and wholesale
trade segments. This was followed by the transportation & storage ($409,300), other services ($325,700),
wholesale & retail trade ($312,800), information & communications ($267,700), business services ($186,600)
and finance & insurance ($126,200) industries.
Services Industry Own Industry Rest of
Economy Rest of Services Manufacturing Others
Wholesale & Retail Trade $1m
(76.2%)
312,800
(23.8%)
290,800
(22.2%)
12,500
(1.0%)
9,500
(0.7%)
Accommodation & Food
Services
$1m
(64.3%)
556,100
(35.7%)
429,700
(27.6%)
71,600
(4.6%)
54,800
(3.5%)
Transportation & Storage $1m
(71.0%)
409,300
(29.0%)
330,900
(23.5%)
58,400
(4.1%)
20,000
(1.4%)
Information & Communi-
cations
$1m
(78.9%)
267,700
(21.1%)
216,700
(17.1%)
36,600
(2.9%)
14,500
(1.1%)
Finance & Insurance $1m
(88.8%)
126,200
(11.2%)
116,400
(10.3%)
5,400
(0.5%)
4,400
(0.4%)
Business Services $1m
(84.3%)
186,600
(15.7%)
141,800
(12.0%)
23,300
(2.0%)
21,400
(1.8%)
Other Services $1m
(75.4%)
325,700
(24.6%)
257,000
(19.4%)
40,000
(3.0%)
28,700
(2.2%)
Source: Estimates based on the Singapore IO Tables 2013
Notes: The “Others” category includes construction, utilities and other goods producing industries. The numbers in parenthesis denote the share of VA that
is generated in the overall economy from an increase in VA in the services industry. The figures for “Rest of Services”, “Manufacturing” and “Others” may not
sum to that of “Rest of Economy” due to rounding.
Exhibit 7: VA spillovers generated for a $1 million increase in services VA by services industry, 2013
In terms of employment, growth in the various services industries also primarily supported employment
creation within the services sector, with limited spillovers to the manufacturing sector (Exhibit 8). For every
100 jobs that were created in each services industry through an increase in final demand, the number of
manufacturing jobs created through spillovers ranged from 1 (for finance & insurance) to 8 (for transportation
& storage) jobs. Employment creation in the transportation & storage industry was associated with the most
jobs created in the broader economy (45 jobs for every 100 transportation & storage jobs). This was followed
by the wholesale & retail trade (34), information & communications (29), business services (26), finance &
insurance (25), accommodation & food services (17) and other services (13) industries.
56
Economic Survey of Singapore Third Quarter 2017
Analysis of Inter-Sectoral Linkages Over Time
Over time, economic spillovers generated by both manufacturing and services have risen on the back of a
strengthening of their backward linkages with other sectors within the domestic economy (Exhibits 9 and 10).12
Between 2000 and 2013, indirect VA generated in the rest of the economy by the manufacturing and services
sectors rose by 2.2 per cent per annum (p.a.) and 0.2 per cent p.a. respectively. Notably, the manufacturing
sector has deepened its backward linkages with several individual services industries in the economy such as
business services. Between 2000 and 2013, the indirect VA generated in the business services industry from a
$1 million increase in manufacturing VA rose by 4.1 per cent p.a. (from $75,700 to $127,400).
Services Industry Own Industry Rest of
Economy Rest of Services Manufacturing Others
Wholesale & Retail Trade 100
(74.4%)
34
(25.6%)
31
(22.9%)
2
(1.5%)
2
(1.2%)
Accommodation & Food
Services
100
(85.8%)
17
(14.2%)
11
(9.5%)
4
(3.2%)
2
(1.5%)
Transportation & Storage 100
(69.0%)
45
(31.0%)
34
(23.7%)
8
(5.5%)
3
(1.7%)
Information & Communi-
cations
100
(77.3%)
29
(22.7%)
23
(17.6%)
4
(3.5%)
2
(1.6%)
Finance & Insurance 100
(79.7%)
25
(20.3%)
23
(18.1%)
1
(1.1%)
1
(1.0%)
Business Services 100
(79.1%)
26
(20.9%)
16
(12.8%)
4
(3.1%)
6
(5.0%)
Other Services 100
(88.4%)
13
(11.6%)
10
(8.7%)
2
(1.6%)
1
(1.3%)
Source: Estimates based on the Singapore IO Tables 2013
Notes: The increase in 100 services jobs arises from an increase in final demand in the services industry. The “Others” category includes construction, utilities
and other goods producing industries. The numbers in parenthesis denote the share of employment that is generated in the overall economy in line with an
increase in 100 jobs in the services industry. The figures for “Rest of Services”, “Manufacturing” and “Others” may not sum to that of “Rest of Economy” due
to rounding.
Exhibit 8: Employment creation associated with an increase in 100 services jobs by services industry, 2013
$220,200 $225,600
$260,700 $290,500
$26,000 $22,500
$33,300
$36,100
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
2000 2005 2010 2013
Services Others
$246,300 $248,100
$293,900
$326,600
Exhibit 9: Indirect VA associated with a $1 million increase in manufacturing VA, 2000-2013
Source: Estimates based on the Singapore IO Tables 2000, 2005, 2010 and 2013
Notes: The “Others” category includes construction, utilities and other goods producing industries. The numbers may not sum to the total due to rounding.
12 Changes in economic spillovers over time could also be influenced by changes in prices and the make-up of the IO industries, as well as methodological
updates.
57
FEATURE ARTICLE
Within the manufacturing sector, the chemicals cluster saw the largest improvement in backward linkages
in the domestic economy (Exhibit 11). Between 2000 (when Jurong Island13 was officially opened) and 2013,
the VA spillovers from the chemicals cluster to the rest of the economy rose by 8.6 per cent p.a., supported by
increases in VA spillovers to other manufacturing clusters (10.9 per cent p.a.) and the services sector (8.9 per
cent p.a.).14 During this period, VA spillovers from the precision engineering and transport engineering clusters
to the rest of the economy also increased by 4.6 per cent p.a. and 1.4 per cent p.a. respectively.15 On the other
hand, VA spillovers from the electronics, biomedical manufacturing and general manufacturing clusters have
remained fairly stable over time.
Exhibit 10: Indirect VA associated with a $1 million increase in services VA, 2000-2013
Source: Estimates based on the Singapore IO Tables 2000, 2005, 2010 and 2013
Notes: The “Others” category includes construction, utilities and other goods producing industries. The numbers may not sum to the total due to rounding.
13 Using a model of ‘state-enabled industry integration’ (see Chan, 2011), Singapore established a specialised 33km2 cluster of chemical activities on
Jurong Island to harness scale economies and linkages between firms.
14 VA spillovers from the chemicals cluster to the construction, utilities and other goods producing industries also rose by 6.6% p.a. between 2000 and
2013.
15 Between 2000 and 2013, the precision engineering cluster’s VA spillovers to services (5.4% p.a.) and the other manufacturing clusters (2.2% p.a.) rose,
while VA spillovers to the construction, utilities and other goods producing industries remained stable. For the transport engineering cluster, there was
an increase in VA spillovers to services (1.7% p.a.) and the construction, utilities and other goods producing industries (0.4% p.a.), while VA spillovers
to the other manufacturing clusters remained at similar levels between 2000 and 2013.
Source: Estimates based on the Singapore IO Tables 2000, 2005, 2010 and 2013
Exhibit 11: Indirect VA associated with a $1 million increase in manufacturing VA by manufacturing clusters, 2000-2013
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
2000 2005 2010 2013
Electronics Chemicals Biomedical Manufacturing
Precision Engineering Transport Engineering General Manufacturing
$ Million
$20,300
$15,000
$23,000 $20,900
$13,800
$10,900
$13,500 $14,100
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
2000 2005 2010 2013
Manufacturing Others
$34,000
$23,900
$36,500 $35,000
58
Economic Survey of Singapore Third Quarter 2017
5. CONCLUDING REMARKS
In recent years, the rapid growth of services worldwide has led to views that countries can pursue services-
centric pathways of development (e.g., Bhagwati, 2010; Romer, 2012; Ghani & O’Connell, 2014). Indeed, such
views are supported by several characteristics of the services sector (e.g., its strong intra-sectoral linkages
and capacity to generate employment opportunities), as well as the attractiveness of modern services.
However, the manufacturing sector continues to retain many important engine-of-growth properties (see
Haraguchi et al., 2017). Arising from their asymmetric dependencies, manufacturing development anchors
services activities, but services growth may not stimulate the development of manufacturing activities. As
such, the loss of manufacturing capabilities is harder to restore as the sector does not benefit significantly from
a thriving services-centric economy. The manufacturing sector’s strong inter-sectoral linkages, particularly
backward linkages to the services sector, offer countries the opportunity to undertake complementary
approaches to develop both the manufacturing and services sectors.
Similar to the observations in other economies, this study highlights that there are also asymmetric
dependencies between manufacturing and services in Singapore, a predominantly services economy with a
manufacturing base. Linkages are strong from manufacturing to services, but comparatively weaker in the
opposite direction. As such, growth in the manufacturing sector results in more significant spillovers to the
services sector, in terms of VA generated and jobs created, than vice versa.
The cluster approach under the ITMs is undertaken in recognition of the increasingly complex linkages across
sectors in the economy. In view of their synergies, efforts to grow highly-productive modern services such
as professional services, wholesale trade, and finance & insurance under the ITMs will be supported by the
concomitant development of a globally-competitive manufacturing sector.
Contributed by:
Dr Kuan Ming Leong
Lead Economist
Economics Division
Ministry of Trade and Industry
59
FEATURE ARTICLE
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