Thursday, May 8, 2008
Benefits of Trade for Singapore
I picked up a handwritten piece of paper and realized that it was about international trade, our latest topic. The heading was "The Benefits of Trade for Singapore". Here is a verbatim copy of the paper. I claim no credit for the contents below.
1. Wider Consumer Choice and Greater Variety --> Higher Standard of Living
With trade, consumers all over the world are able to enjoy a greater variety of goods and services to suit different tastes. The advent of trade has allowed temperate fruits such as apples to be consumed and enjoyed in Singapore. This would not be possible otherwise as Singapore has a tropical climate that is not conducive for growing such fruits.
2. Efficiency in Production and Lower World Prices
Specialization allows firms to increase the market size for their products by moving beyond domestic markets into international markets. This allows firms to reap economies of scale. Disk drives manufacturer has a high MES, so it must spread its high startup cost over a large quantity so that the unit cost of disks is affordable. With trade, disk drive makers in Singapore can move meeting domestic demand into meeting world demand. In fact, SIngapore produced 70% of the world's disk drives in 2006. Thus, trade, by furthering the quantity produced, allows the manufacturer to experience EOS and spread the savings to consumers.
3. Factor Price Equalisation
This theory states that the relative prices for two identical factors of production will eventually equal each other due to competition. An example is bread that is produced in Malaysia (Bonjour Bread) versus those made in Singapore (Sunshine Bread). Both are sold in the domestic market. Currently Bonjour bread is cheaper. The prices of bread are predicted to approach the same price in the long run due to competition. Factor price equilibrium states that the wages of workers will also be similar as a result. The consequence is that free trade will equalize wages throughout the world, thus Singapore is trying to manufacture high-end products and move up the value chain so that factory workers here will not experience a drop in wages from the competition by China/India. Do note that the decrease in wages is not caused by migration of workers, but from the free trade of cheaper goods from China/India.
4. Increased Competition and Prevention of Monopolies
By bringing more producers to the market, international trade increases competition and promotes economic efficiency. One example is the bidding of the Integrated Resorts by various consortiums led by overseas entertainment corporations eg Genting. The alternative is to commission an existing statutory board ( eg Sentosa Development Corporation, which has managed Sentosa from 1972) to design and manage, but this will decrease competition. The bidding process is believed to increase the competition of ideas and the consortium will add another company involved in the tourism industry here.
5. Innovation and Transfer of Technologies
Fierce competition stimulates entrepreneurial efforts to improve products. International trade also provides new markets. An example is the Singapore-Suzhou Industrial Park. Engineers from the JTC and consultants from EDB are roped in to set up the industrial park, leading to growth in Suzhou and also the transfer of advanced technologies from SIngapore. The collaboration also provide new markets for JTC, which profits economically from the construction of the industrial park.
6. Trade as an engine of growth
Free trade provides greater access to global markets for the products of domestic producers. The demand for a country's exports are likely to grow, especially if exports have a high income elasticity of demand. Singapore has signed various Free Trade Agreements (FTAs) with trade partners such as USA and Middle East. Singapore, as a major trading centre and the busiest trading port in the world, also benefits from the side effects of trade such as docking fees and ship refueling fees.
7. Non-economic advantage
There was nothing mentioned under this heading.
Please, may the original author please write a comment to claim your work. I remember the first page of the manuscript was shown in LT4 on Tuesday.
Thanks. ~ Anonymous
