PJC_H2_ECONS_P2_Q6_Suggested_Ans

1 PJC 2018 H2 P2 Question 6 “If Singapore is to continue to benefit from international trade, the government needs to continue to use trade-related economic policies, such as free trade agreements (FTAs) and policies to stimulate export industries.” a) Explain the determinants of the pattern of trade between Singapore and the rest of the w o r l d . [ 1 0 ] b) Discuss the options available to the government to ensure that it would continue to benefit from free trade. [15] Pattern of trader refers to the type and quantity of exports and imports that a country trades with her trade partners. Some of Singapore major imports include labour intensive, lower value consumable products such as food and clothing . Singapore also import electronics, petroleum and chemical products and re-export some of these products as higher value added products to its trading partners. The main determinants of the pattern of trade between Singapore and the rest of the world include resource endowment which would determine its comparative advantage in the type of goods being produced. Singapore with its small physical size with no natural resources, it does not possess any comparative advantage in the production of l abour intensive goods such as textile and agricultural products. According to the theory of comparative advantage states that a country would be able to benefit from trade by specializing in the production of goods and services in which it can produce at a lower opportunity cost. Singapore with its small physical si ze and small population size, it does not have any com parative advantage in the production of labour intensive goods and services such as textiles, clothing, food or agricultural products. As such, Singapore does not produce and almost import entirely all its consumable products from countries such as China, Malaysia and the rest of its trading partners which enjoy a comparative advantage in the production of these goods at a lower cost than Singapore. On the other hand, with its highly educated and skilled labour force, Singapore have a comparative advantage in the production of higher value, knowledge intensive goods and services and traded these goods and servces with its trading partners. These include goods and services such as high end electronic products, petrol chemical products, pharmaceutical products as well as medical and financial services to its trading partners. Hence, leveraging on its resource endowmen t, Singapore imports mainly goods and services which it does not have a comparative advantag e in producing and export goods and services which it has a comparative advantage in producing.

2 Other than its natural resource endowment, government policies are also one of the determinants of the pattern of trade. Given the limitation of a small physical size wi th a small population and no natural resources, and hence its inabili