GDP per capita measures a country’s average economic output per person, which can indicate the country’s standard of living. The data for GDP (PPP) per capita (constant 2011 international dollar) is adopted here because the relative cost of living and the inflation rates of the countries have been calculated in PPP, better reflecting generalized differences in living standards between countries. China has the largest GDP in the world, producing “$19.85 trillion” in 2016. In comparison, Singapore’s GDP only reaches “$456.68 billion” in 2016 but with an incredibly high GDP per capita of “$81,443”, almost six times higher than the corresponding figure in China (The World Bank data 2018). This is mainly due to the huge difference in population size between these two countries. The graph below has clearly showed that both countries experienced an increase in GDP per capita over the past decade and they shared similar driving force of economic growth.
According to the study conducted by Vu Minh Khuong, Singapore’s economic growth is primarily based on the huge accumulation of capital and labour rather than the TFP (Ross J. 2015). China replicated Singapore’s economic model with its natural advantage of cheap labour and rich raw materials.
It is also a country that is known to have high saving rates and thus more investment in capital based on IS model. Both countries also consistently benefited from huge trade surplus and a large amount of foreign direct investment because of their comparative advantage in manufacturing industries and low costs. However, those endogenous factors–labour and capital-can only increase the growth rate temporarily because the capital-labour ratio goes up. In the long run, the diminishing marginal returns of labour and capital based on Solow’s model will slow down the growth rate, which is verified by Singapore and China’s current GDP per capita growth rate.To sustain the GDP per capita growth rate, both countries need to invest more in research and development, advancing the technology and thus, changing its dependency onto improving productivity-an exogenous variable.