ACJC International Trade Answers Essay Qns 4

1 2024 International Trade Tutorial – Essay Q4 Answer [2019 A’ Levels Question 6] Globalisation has been a major influence on Singapore’s economic performance. The uncertainty and instability happening around the world in recent years could threaten the economic benefits that globalisation brings. Source: BBC News, Globalisation, Key Facts: The Global Economy (a) Explain two different factors that have enabled globalisation to occur. [10] Question Analysis: Command Explain • Start: Two different factors • End: Globalisation Concepts Globalisation Context Not given Introduction: Globalisation refers to the development of an increasingly global economy characterised by free trade of goods and services, international flows of capital, and labour mobility. Factors driving globalisation include government policies and technological advancements. R1: Government Policies Governments around the world have increasingly accepted globalisation as an engine of economic growth and have implemented policies to enable greater trade and movement of investment. According to the theory of comparative advantage, countries can benefit by exporting products they have a relative cost advantage in (i.e. can produce at a lower opportunity cost than other countries) and importing the goods they have a relative cost disadvantage in. Through specialisation and trade, there will be a higher world output and all countries would mutually benefit from higher levels of consumption than before (countries can now consume beyond their production possibilities curve) . Recognising this advantage of trade, governments around the world have signed more Free Trade Agreements (FTA), which has resulted in in the removal or lowering of trade barriers such as tariffs. For example, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership was signed in 2018 allowing for free trade between 11 countries including Singapore, Australia, Mexico, and Vietnam. The following diagram shows the impact of removing trade barriers:

2 Before the signing of FTAs, these countries imposed tariffs on imported goods, shifting the world supply curve from Sworld to Sworld + tariff raising the price of imports as indicated by Pt. With the tariff in place, domestic firms produce QD0, and QD0 – QT quantity of the goods consumed in the economy are imported. With the removal of tariffs, imports are now cheaper, as reflected by PW. Without the tariff, only Q D1 goods are produced by domestic firms while imports have increased to Q D1 – Q F. This increase in imports shows that trade volume has increased, contributing to greater integration between economies and giving rise to globalisation. It also becomes easier and more attractive for firms to invest and expand overseas, resulting in greater flow of FDI and capital between countries. R2: Advancements in technology Technological advancements have resulted in faster and lower