Tapping on Opportunities in External Demand: A Trade in Value-Added Analysis

This article examines the trends in Singapore’s value-added (VA) derived from foreign final demand over the years, using data from the OECD Inter-Country Input-Output Tables.

Over the period of 2005 to 2015, the Singapore economy became more reliant on final demand from China and ASEAN-5 relative to final demand from the Eurozone and the US, even though the latter two remained important markets for Singapore. In particular, China has risen in importance as a final demand market for Singapore, while Singapore’s dependence on the US as a final demand market has seen a decline.

Changes in Singapore’s VA from foreign final demand markets can be decomposed into changes in the size of the foreign final demand markets and changes in Singapore’s VA multipliers (i.e., each multiplier shows the VA that accrues to Singapore from a $1 increase in final demand in a particular market). We find that the increased importance of China as a final demand market for Singapore was due to the growth of its final demand.

Singapore can access foreign final demand opportunities via three channels, namely the Domestic Final Producer Channel, the Foreign Final Producer Channel and the Third-Party Final Producer Channel, which are in turn differentiated by the location where the final goods and services are produced before being sold to final consumers. Using China as a case study, we find that Singapore-based firms derived the most VA from China’s final demand via the Foreign Final Producer Channel (i.e., Singapore-based firms selling intermediate goods and services to producers in China, which then produce the final goods and services consumed within China). We also find that the Domestic Final Producer Channel – where Singapore-based firms either sell intermediate goods and services to other firms in Singapore which then produce the final goods and services sold to consumers in China, or sell final goods and services directly to consumers in China – has risen in importance over the years.

The views expressed in this paper are solely those of the authors and do not necessarily reflect those of the Ministry of Trade and Industry or the Government of Singapore.

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