ACJC International Trade Answers Essay Qns 1

Question 1: 2015 A Levels “While Singapore's economic restructuring efforts have borne fruit, it is a marathon with no finish line. We are not done. I don’t think we’ll ever be done. Ten years from now, I’m sure we’ll still be talking about productivity growth and upgrading.” - Prime Minister Lee Hsi en Loong Todayonline, 11 June 2019 (a) Using examples, explain why an economy’s comparative advantage might change over time. [10] (b) Assess the measures adopted by the Singapore government to improve the economy’s global competitiveness. [15] (a) Explain why an economy’s comparative advantage might change over time. [10] Command Explain why • Provide at least 2 reasons of why comparative advantage in an economy might develop or lost over time. Concepts Theory of comparative advantage Dynamic comparative advantage Context Not given, use own examples to substantiate argument Introduction: A country’s comparative advantage is determined by its opportunity cost in production. • Define comparative advantage: A country has a comparative advantage in the production of a good/service if it incurs a lower opportunity cost compared to another country. • Differences in opportunity cost are mainly due to differences in the quantity and quality of resources for the production of a specific good. • A country will have comparative advantage in the production of good/service which uses more the resources/efficiency the country has more. A country with advanced technology will have comparative advantage in production with high technology content. • Comparative advantage is not static, it changes over time with countries having different rates of improvements in their production processes. Singapore for example has acquired its current advantage in pharmaceutical industries technology and R&D investment. Requirement 1: (Factor 1) Changing factor endowment • In the early days of industrialisation in Singapore, the country used to have comparative advantage in labour intensive industries such as food and textile production. However, with the emergence of China and other Southeast Asian countries which have abundant labour, Singapore’s comparative advantage is lost to these countries. In response to this, Siungapore has focused on developing its labour force through its education and upskilling efforts to increase the skillsets of workers. This has allowed Singapore to develop a comparative advantage in industries such as higher-end manufacturing, financial services and innovative technology. • Similarly, China can be said to have lost some comparative advantage in labour intensive production as Vietnam has developed in the abundance of low skilled labour with low wages needed for such production.

Requirement 2: (Factor 2) Differing rates of technological advancement between countries • Technological advancements can be used to overcome constraints faced by a country in terms of quantity of resources. Technology can make up for the lack of skilled labour in a country. This allows the country to enjoy a lower opportunity cost than that of its trading partners. • A country that initially has the comparative advantage via technology may lose it if it is does not invest enough in R&D to sustain this advantage compared to its competitors. The global rise of Samsung (South Korea) and the fall of Nokia (Finland) is one example of the shift in comparative advantage due to technological gaps. • Related to technology is the rate of investment in plant and machinery. Greater use of automation, even at the same technology, can improve efficiency. • Singapore is an example of a country that uses both investment and innovation to move up the value chain in the pattern of comparative advantage. Comparative advantage is dynamic and changes over time with shifts in quantity and quality of resources between countries. Comparative advantage can be acquired through various methods involving improving the quality of resources. It should be noted that the shifts in comparative advantage are very much influenced by government policies. Singapore is an example of how various government policies have been focused on sustaining and acquiring new comparative advantage. Level Descriptors Mark s L3 • Two factors (requirements) clearly explained on how comparative advantage shifts. • Comparative advantage principle sufficiently explained as reference in the explanation of the two factors. 8-10 L2 • Superficial explanation of comparative advantage and two factors, OR one factor well explained. 5-7 L1 • With major conceptual errors e.g. mistaking opportunity cost with cost of production, competitive advantage with comparative advantage. 1-4 Cambridge report (FOR TEACHER’S REFERENCE ONLY) This question was, in the main, chosen by relatively weak candidates. In consequence, many of the answers were descriptive rather than analytic in approach. Part (b) was marginally better answered than part (a). (a) Most candidates defined comparative advantage and described factors that might cause it to change. They described factors such as declines in mineral resources such as oil, changes in the work force, changes in technology, changes brought on by globalisation and changes due to government policy. The better responses linked this to opportunity cost but very few used production possibility curves or other tools of analysis to help explain their responses.

(b) Assess the measures adopted by the Singapore government to improve its global competitiveness. [15] Command Assess the measures • Explain at least 2 measures adopted • Elaborate on limitations or unintended consequences of these measures Concepts Government policies mainly Supply side policies and/or trade policies Context Singapore Approach: Requirement 1: Policy A Evaluation of policy A (strengths and limitations) Requirement 2: Policy B Evaluation of policy B (strengths and limitations) Introduction: A country’s global competitiveness is affected by its supply conditions • Global competitiveness refers to the capacity of an economy to compete with other economies for export demand, foreign investment and even foreign talents. This capacity is influenced by the quality of the country’s resources and infrastructure, the efficiency of the government and its economic policies in place. • A country can be globally competitive in terms of both price and non -price factors of its resources and production. • Singapore’s exposure to imported inflation due to the country’s import reliance is dependence on imports poses constant threat to the country’s global competitiveness and the set of policies includes the management of this risk through exchange rate policy. • The Singapore government uses both direct government intervention and pro-market supply- side measures in driving productivity and efficiency gains for improvement in global competitiveness. Requirement 1: Singapore adopts supply- side measures such as skills training and infrastructure provision such as digital connectivity. • The government adopts supply side measures such as skills training and infrastructure provision. • Over the years, the government has improved the quality of education from the primary to tertiary level and pushed for skills training through initiatives such as the Skills Future. The government’s investment in education and ongoing skills development has helped to raise the labour force’s capabilities and productivity. Other supply side measures also include various investment grants for firms to adopt deeper technology and expand internationally such as the enterprise grants • These supply-side measures lead to greater efficiency which has the effects of expanding productive capacity and lowering domestic