Markup Variation and Productivity Measurement in Singapore *

Conventional measures of total factor productivity using growth accounting may not be appropriate when there is variation in markups across industries. The existence of market power implies that total factor productivity contains an endogenous component related to the variation in markups. I examine the variation of markups at the industry level for the manufacturing and services sectors in Singapore from 1983 to 2003. Using two different measures, I find that the markups in Singapore are significant in most industries, at around 28 and 55percent for the manufacturing and services sectors, respectively. Markups for the services sector declined during the period, while the markups for the key manufacturing industries increased after the Asian financial crisis in 1997. Accounting for variation in markups suggests that improvement in technological progress tends to be underestimated by 0.5-1.0percent per year. The underestimation is more severe in industries with relatively high markups. Copyright 2006 East Asian Economic Association and Blackwell Publishing Ltd..