Singapore’s Comparative and Absolute Advantages Economy Watch Content s that Singapore is the 15th largest importer and 14th largest exporter in the world. Singapore’s trade to GDP ratio is the highest with international trade actively influencing the economy (Economy Watch Content). Singapore’s dependence on the international market and its small population have made it embrace international trade (Australian department of foreign affairs and trade). The government pursues an export-oriented economic activity that encourages a two-way flow of products and services in international trade (Australian department of foreign affairs and trade).
Singapore’s integration with other Asian economies and its significant involvement in international trade set it apart from other economies (Yue, 1). According to the Encyclopedia of business, Singapore is well known for its quality electronic equipment and computer peripherals. It’s absolute and comparative advantage is one of the factors that has led to an increase the presence of international corporations. A large part of its exports originate from foreign companies like the U. S owned companies which form the most major investors in Singapore (Encyclopedia of business). Singapore, however, has abandoned the low-end manufacturing of electronics that are labor intensive and invested in high-end products that are capital intensive.
According to Acharya, innovation is among the most important factors that influence comparative advantages and a country’s strong performance in high-end products and indicates success (34). Singapore has an absolute advantage in production of chemical products which highly depend on labor and not capital intensity. A comparative advantage, however, does not back this industry except in the manufacture of pharmaceutical commodities. This reason results in chemicals being one of Singapore’s primary imports (Economy Watch Content).
Acharya states that the single most widely used indicator for international trade is comparative advantage and not its absolute advantage (33). In 2004, Singapore’s chemicals importation formed 6.5 percent of total imports. The petrochemical industry, however, has grown extensively as a direct result associated with the absolute advantage arising from Singapore’s refinery capacity (Worldmark Encyclopedia of Nations). According to International Enterprise Singapore, Singapore is Asia’s educational hub providing diverse and quality education (16). Singapore has both absolute and comparative advantage in the educational industry. These benefits arise due to high demand of skilled employees because it is shifting towards a knowledge-based economy (Yue 4).
Singapore’s small population encourages a dynamic education system that will aid in the acquisition of the country’s goals. According to the encyclopedia of business, Singapore has limited barriers against importation and exportation of services. This approach has proved essential in increasing its comparative advantage in the service industry like accounting, prompting more people to enroll in their education system. Singapore’s well-researched curriculum seeks to maximize human potential in driving innovation (Yue 31).
Although Singapore imports all the oil and natural gas it consumes (Worldmark Encyclopedia of Nations), it forms an important petroleum refining center. Crude oil refining capacity was in January 2005 estimated at 1.3 million barrels per day. Singapore is the world’s third largest after Rotterdam and Houston in the petroleum refining (Worldmark Encyclopedia of Nations). Singapore’s comparative advantage is facilitated by it being central to the world’s shipping activities. Singapore’s strategic position along the Strait of Johor and the Strait of Singapore gives it an advantage in the oil refinery providing a refilling point for ships and other sea vessels. Singapore’s strengthening of its transfers and progress in the taxation system has led to an increase in equitable distribution of real income.
Even with equitable income distribution, Singapore has one of the world’s Gini Coefficients at 0.142 in 2013 (Holliday n. d.). According to Holliday, government initiatives like special transfers ongoing since 2007 contribute to narrowing of Singaporeans’ income gap. The government has recently introduced a Wage Credit Scheme increasing by 40 percent the monthly wage of $4000 and below (Holliday n. d.). Works Cited Acharya, Ram C.
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CNBC, 07 Aug. 2014. Web. 27 Mar. 2015. Yue, Chia S. "The Singapore Model of Industrial Policy: Past Evolution And Current Thinking. " Paper for Presentation at the Second LAEBA Annual Conference Buenos Aires (2005): n. p. Print. Worldmark Encyclopedia of Nations. Singapore. Encyclopedia. com, 2007. Web. 27 Mar. 2015