There is substantial evidence, from countries of different sizes and different regions, that as countries “globalise” their citizens benefit. (IMF May 2008)

Explain how globalisation has impacted Singapore’s pattern of trade and assess if such changes have left the Singapore economy better off. [25]

Introduction

Explain the pattern of trade for Singapore.

(RWA) Our key exports today are goods and services such as electronics, chemicals, financial services, oil drilling equipment, life sciences and more recently tourism. Our key imports today are machinery and equipment, consumer goods, mineral fuels and foodstuffs.

 

Address the change

The result of such a pattern of trade today (as compared to before) is due to changes in comparative advantage. Explain that countries trade based on the Theory of Comparative Advantage.

·       Globalisation has led to increased competition and also greater mobility in factors of production.

·       We have thus shifted from more labour-intensive industries (previously) to more high-value capital-intensive industries and services today.

·       This is due to a loss of CA in labour-intensive industries with the emergence and abundance of low-cost labour in countries like China and India.

·       As a result, Singapore with a lack of such labour resources, is unable to compete head-on in such industries.

·       We have since moved on to the high-value capital industries and services by spending and investing on increasing the skills and quality of our labour force.

How other factors may affect pattern of trade

1.    Change in cost conditions (inflation and exchange rates)

2.     Barriers to trade (FTAs)

 

Such changes have benefitted Singapore

1.    Shift from producing low value goods to high value goods brings has allowed Singapore to increase its exports sales àincrease in (X – M)

·  Improvement in BOT

·  Increase growth

·  Lower unemployment

2.    Such changes were also facilitated by FDI, which brings about skills and technology transfers àbringing about both actual and potential growth

·  Higher incomes for skilled workers

 

Such changes have not benefitted Singapore

1.     Structural unemployment (due to industries being displaced / becoming obsolete – e.g. HDD manufacturing in Singapore)

2.     Higher income inequality (disparity between skilled and unskilled workers)

3.     Inflation due to exports led growth

4.     Nature of our exports today are more price elastic and income elastic (more vulnerable to external shocks)

 

Conclusion

While it is true that certain changes have left Singapore worse off, we have to acknowledge that given Singapore’s unique circumstance, embracing globalisation is a matter of survival. As such, the government has to design appropriate policies in the face of globalisation to ensure the long-term progress of the Singapore economy.