1. Page 1 of 2
Economic Commentary
QNB Economics
economics@qnb.com.qa
June 29, 2014
Lessons in Economic Development from Singapore
Singapore is a remarkable growth story. Back
in the 1960s, it was one of the poorest
countries in Asia. Since then, it has
transformed itself into one of the most of the
advanced economies, with the third highest
per capita GDP in the world after Qatar and
Luxembourg. Singapore went through several
stages in this astonishing development. It had
initially started with basic industrialization,
then moved to more sophisticated industries
before developing as a regional hub for trade
and financial services. Its latest phase of
development is establishing a knowledge-
based economy. Singapore’s remarkable
development provides useful lessons for GCC
countries, which seek to diversify their
economies away from oil into a more
sustainable model of growth and development.
In 1960, Singapore was a British colony whose
economy mainly served as a regional trading
post. British military bases accounted for
nearly a fifth of nominal GDP and at least 75%
population had no primary education. Since
then, the economy had developed at a
remarkable speed. Between 1966 and 2013,
real GDP per capita grew fifteen fold, three
times as fast as its growth in the US.
The dramatic transformation took place in
different phases, almost following an
economic textbook. An economy grows either
because of increase in inputs (labor, capital or
natural resources) or because those inputs
become more productive. In the case of
Singapore, most of the initial growth came
from a rapid increase in labor and capital. More
recently, however, most of the Singapore
growth story has come from more productivity
gains as the economy has become more
knowledge-based.
GDP per Capita in the US and Singapore
(USD, PPP)
Sources: International Monetary Fund and QNB Group analysis
The first phase of Singapore’s development
involved a large mobilization of inputs to turn
the economy into an export-led manufacturing
base. This was driven by a deliberate
government industrial policy financed by
national savings and inflows of foreign
investment. As a result, investment as a share
of output rose from less than 10% in 1960 to
over 40% in the mid-1980s, leading to large
accumulation of capital and skilled labor. In
addition, Singapore expanded its labor pool
through immigration and a higher
participation of its population in the labor
force.
In doing so, Singapore climbed up the value-
added chain, moving from basic industries
such as textiles, clothing and plastics to
sophisticated ones such as electronics,
chemicals, precision engineering and
biomedical sciences. In addition, this
development went hand-in-hand with a large
increase in services, especially banking.
However, a development model based merely
on the expansion of inputs eventually hits a
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
1980 1985 1990 1995 2000 2005 2010
Singapore
US

2. Page 2 of 2
Economic Commentary
QNB Economics
economics@qnb.com.qa
June 29, 2014
wall as the marginal returns to those inputs
decline and the population becomes fully
employed.
Given therefore the limits of the previous
development model, Singapore needed to
move to a new stage of development that
relies on productivity gains from existing
inputs rather than their further expansion. To
do so, Singapore is adopting two strategies.
The first relies on importing the latest global
technological advances to increase capital and
labor productivity by encouraging foreign
direct investments and hiring foreign talents
as a means of knowledge transfer. The second
rests on providing the right legal, governance
and intellectual environment to grow and
nurture the acquired talent in order to
innovate and create new technological
advances. In this respect, Singapore ranks first
in the economic incentive regime for a
knowledge-based economy and fourth in the
world in terms of innovation in the World
Bank’s Knowledge Economy Index. The World
Bank also ranks Singapore first in the world in
its Doing Business Report.
Qatar could draw useful lessons from the
experience of Singapore in the implementation
of the Qatar National Vision 2030. Both are
small countries with an open economy to the
rest of the world. Although Qatar is blessed
with far more natural resources than
Singapore, production in its hydrocarbon
sector has plateaued and the economy is
undergoing a diversification phase.
The diversification phase is marked by rapid
expansion in investment spending into
infrastructure and industries leading to a large
build-up in physical capital such as roads,
machines and buildings. This is accompanied
by rapid increases in skilled labor through
immigration. This is similar in nature to the
first phase of Singapore’s rapid growth.
However, like other countries, the process of
expanding the inputs of production will
eventually run its course, requiring a new
model of development in line with Qatar’s
National Vision 2030. A key factor in changing
that growth model will be Qatar’s ability to
attract, develop and retain human capital in
the same way as Singapore is doing it today.
In the long term, growth is primarily due to
increases in knowledge and improvements in
productivity. The experience of Singapore
suggests that offering excellent education,
attracting high-quality workers and creating
the right environment and infrastructure to
innovate and advance are necessary
conditions to create sustainably high levels of
economic growth. Qatar’s National Vision
2030 sets out the roadmap for this new
development phase.
Contacts
Joannes Mongardini
Head of Economics
Tel. (+974) 4453-4412
Rory Fyfe
Senior Economist
Tel. (+974) 4453-4643
Ehsan Khoman
Economist
Tel. (+974) 4453-4423
Hamda Al-Thani
Economist
Tel. (+974) 4453-4646
Ziad Daoud
Economist
Tel. (+974) 4453-4642
Disclaimer and Copyright Notice: QNB Group accepts no liability whatsoever for any direct or indirect losses arising from use of this report.
Where an opinion is expressed, unless otherwise provided, it is that of the analyst or author only. Any investment decision should depend
on the individual circumstances of the investor and be based on specifically engaged investment advice. The report is distributed on a
complimentary basis. It may not be reproduced in whole or in part without permission from QNB Group.