SINGAPORE can overcome its "productivity trap" by expanding regionally and tapping higher growth elsewhere, said DBS economists Irvin Seah and Ma Tieying in a report released on Thursday.
"If productivity/GDP growth cannot be lifted above other advanced countries due to an aging population and a shrinking labour force, then investing overseas may help overcome the growth limitations," said the DBS Group Research team.
Rather than be constrained by domestic gross domestic product (GDP) growth of 1-3 per cent, Singapore can invest in higher-growth neighbouring countries that offer 5-6 per cent growth or returns.
"Income generated in the process would be reflected in GNI (gross national income) and contribute to national income and tax revenue," added Mr Seah and Ms Ma.
They noted that this outward investment strategy should yield positive returns in the longer term, judging from the experiences of Japan and Taiwan.
Already, Singapore's outward direct investment has been rising steadily over the years. Still, it remains small compared to foreign direct investment (FDI) inflows.
"From a policy perspective, while FDI and the presence of MNCs will remain a key feature of Singapore's economic landscape, having a pool of globally successful local companies could help sustain national incomes in the face of rising domestic cost pressures and the challenges of an aging population," said Mr Seah and Ms Ma.