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SINGAPORE ECONOMY Name Instructor Institution Date SINGAPORE-(Answered)


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Dear all?

I need help on the question attached. Please try to use basic international economics as it would help me understand better and present it to my peers. (Good answers will be tipped)

This is the unfinished answer. Either edit from there or you can add-on.

And also these are the tips/hints.

-Elaborate: WHY and HOW singapore has comparative advantage at refined petroleum because e.g. no raw materials and by refining and exporting; and also WHY and HOW does it has disadvantage

-Use figures from the report to support your answers.?
-Draw diagrams to aid explanation
-(a) trade creation & dynamic benefit from custom union
-(b)trade diversion e.g. due to importing from lower cost non-AFTA

3. For example!
Current account = +74,466.8
Capital/Financial account = -62,864.4
Net errors/omission = -2,984.6
Overall BOP = 8,617.8
Official Reserves = - 8,617.8
- Income inflow < Income outflow = Net income flow (deficit) E.g. are FDI, portfolio inv, property)
- Show how is singapore facing competition in services sector
















Question 1


Refer to the website of Singapore Department of Statistics, external trade section at


Search for the report on the products that Singapore export to and import from other countries


over the period 2011 to in 2014 and analyse the report. Based on your understanding of the


Singapore economy and international trade theories, answer the following questions





Explain comparative advantage and determine the products for which Singapore has


comparative advantage and comparative disadvantage from the relevant statistical


tables in 2014.


(8 marks)



Comparative advantage is the ability of country to produce goods and services at a


lower opportunity cost than other countries (Huff, 2012). Singapore has comparative


advantage in refined petroleum and comparative disadvantage in gas turbines products.


Singapore has been portrayed as a competitive country. The law of comparative advantage


usually teaches us that it is easy to increase economic welfare with the same limited set of


resources (Huff, 2012). The Government of this country is needed to abandon their


mistaken policy of trying to engineer an economy that does everything the so-called ?hub


of hubs? to the social and economic detriment of the country (Huff, 2012). Instead, the


Singapore?s areas of comparative advantage has to be identified, supported and exploited







Discuss and analyse the relevance of Heckscher-Ohlin theory in explaining the trade


pattern between Singapore and the rest of the world in 2014.


(8 marks)



The Heckscher Ohlin theory is one of the four critical theorems of the Heckscher


Ohlin model that was developed by Swedish economist Eli Heckscher and Bertil Ohlin, his


student. It states that a country will export goods that use its abundant factors intensively,


and import goods that use its scarce factors intensively (Huff, 2012). Therefore, Singapore






exports refined petroleum by using its abundant factors intensively and importing gas


turbines products that use its scarce factors intensively. The theory of Ohlin begins where


Ricardian theory of international trade ended. The Ricardian theory states that the basis of


international trade is comparative costs difference. Ohlin states that trade results because of


the different relative price of different goods in different countries. The relative price


commodity difference is the result of relative costs and factor price differences in different




Differences in factor prices are due to differences in factor endowments in different


countries. This therefore, boils down to the fact that trade occurs because different


countries have different factor endowments. Ohlin?s theory is usually expounded in terms


of a two-factor model with labor and capital as the two factors of endowments. The gist of


the theory is what determines trade is differences in factor endowments. Some countries


have plenty of capital; others have an abundance of labor. The Heckscher-Ohlin theorem is:


countries that are rich in labor like Singapore in our case will export labor-intensive goods


and countries that have plenty of capital will export capital-intensive products.






What do you understand by re-export in Singapore? What contributes to Singapore?s


role as a re-export market? Explain.


(4 marks)



Re-exportation is where one member of a free trade agreement charges lower


tariffs to external nations to win trade, and then re-exports the same product to another


partner in the trade agreement, but tariff-free (Huff, 2012). Re-exportation can be used to


avoid sanctions by other nations. Re-exports are foreign goods exported in the same state


as previously imported, from the free circulation area, premises for inward processing


directly to the rest of the world and from premises for commercial free zones, to the rest of






the world. Singapore has good port infrastructure and skill work force that that works on


the import products.



Question 2


The ASEAN Free Trade Area (AFTA) comprises 10 countries, Singapore, Malaysia, Thailand,


Indonesia, Philippines, Brunei, Vietnam, Laos, Cambodia and Myanmar. With the free trade


area formed, the member can impose different tariff rates to products originated from outside


ASEAN. But for goods originated within ASEAN, the members have to apply a common


effective preferential tariff of between 0 to 5% on all products except for some general







Explain and analyze the possible benefits of the formation of ASEAN Free Trade Area.


(10 marks)



ASEAN aims are the acceleration of economic growth, social progress, and cultural


development among its members. The other is protection of regional peace and stability,


and opportunities for member countries to discuss differences peacefully (Huff, 2012). It


makes free movement of goods, services, investment and skilled labor, freedom of capital


liberalization. ASEAN strengthens and accelerates the progress towards both the AEC and


RCEP to prevent a split within ASEAN. ASEAN used TPP to accelerate progress in


regional agreements as well as in unilateral reforms.






Explain and analyze the possible negative effects of the formation of ASEAN Free


Trade Area.



(5 marks)


ASEAN has negative effects too, one of them is every country is needing more


resources for making their products (Huff, 2012). Therefore, it will be bad for nature area


since people need more natural resources. The reduced tariffs have negatively affected


Thailand's agricultural sector because of greater number of imported agricultural products.






As of 2014, Cambodia, developing member of ASEAN, is not yet ready for economic


integration even as the 2015 deadline for streamlining its tariffs approaches. The ASEAN


Economic Community has faced criticism for not protecting small and medium enterprises


and for being reluctant to promote human rights and democracy in countries such as


Myanmar. As of 2014, ASEAN members are pursuing ways to liberalize services such as


air transport within the region.






Question 3


Refer to the website of Singapore Department of Statistics, balance of payments at


Search for the report on the balance of payments of Singapore in 2014. Go through the report


and answer the following questions.





Discuss the current account balance, capital account balance and the overall balance of


the Singapore?s balance of payments in 2014.


(6 marks)



Balance of Payments consists of current account, capital and financial account. It


summarizes the economic transactions between Singapore residents and non-residents. As


of 2015, the current account surplus stood at $79.1 billion and amounted to 19.7% of GDP


at current market prices while the capital and financial account deficit reached $77.1 billion


(Huff, 2012).






Explain the health of the Singapore economy based on your analysis of its balance of




(4 marks)



The health of Singapore economy is good because it has a surplus of $79.1 billion


and not a deficit. The GPD percentage is fair at current market price (Huff, 2012).



Question 4


Singapore dollar (S$) has been appreciating against Malaysian Ringgit (MR) in 2015, from the


exchange rate of S$1 to about MR2.5 in January 2015 to the exchange rate of S$1 to more than


MR3 in August 2015. Two incidents have contributed to the weakening of Malaysia Ringgit.


One is the steep drop in the oil price and Malaysia is a large oil exporting country. The second


incident is the increasing pessimism in the economic prospects of the Malaysia economy,


leading to investors pulling out their funds from shares, properties and other financial


instruments to invest elsewhere.





Consider the foreign exchange market between Singapore dollar and Malaysia Ringgit.






Define exchange rate as number of Malaysian Ringgit to one Singapore dollar. Use


suitable foreign exchange market diagrams to discuss the equilibrium in the market and


analyze the changes in the foreign exchange market between Singapore dollar and


Malaysian Ringgit.


(10 marks)



Since price is an obstacle, the higher the price of a product, the less it is demanded.


When the price is reduced, demand increases. Then, if there is an inverse relationship


between price and quantity demanded. When we graph the relationship, we will get a


downward-sloping line (Huff, 2012). A supply schedule will show the amount of product


that suppliers are willing and able to produce and make available to the market, at specific


price points, during a certain period. This happens because suppliers tend to have different


costs of production. At a low price, only the most efficient producers can make a profit, so


only they produce. At a high price, even high cost producers can make a profit, so everyone


produces. Equilibrium is the point where the quantity demanded equals the quantity


supplied (Huff, 2012). This means that there is no surplus of goods and no shortage of


goods. A shortage occurs when demand is greater than supply, in other words, when the


price is too low. A surplus occurs when the price is too high, and therefore consumers do


not want to buy the product.






What do you think will happen to the current account, financial account and the overall


balance of payments of Malaysia? If Malaysia were to operate under a fixed exchange


rate system (with US dollars), discuss how the system operates and explain how a fixed


exchange rate will affect its foreign reserves.


(10 marks)



There will be deficit in the current account, the percentage in the financial account


will reduce and the balance of payment will increase (Huff, 2012). At fixed exchange rate


will mean the countries will be operating at equilibrium. Equilibrium is the point where the






quantity demanded equals the quantity supplied. This means that there is no surplus of


Singapore dollar (S$) and no shortage of Malaysian Ringgit (MR). A shortage occurs when



demand is greater than supply, in other words, when the price is too low (Huff, 2012). A


surplus occurs when the price is too high, and therefore consumers do not want to buy the










Huff, W. G. (2012). The economic growth of Singapore: Trade and development in the


twentieth century. Cambridge [u.a.: Cambridge Univ. Press.




Paper#9210429 | Written in 27-Jul-2016

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