This economics paper explains whether Singapore’s trade patterns follow the economic theory of comparative advantage, which is often called the "law" of comparative advantage, and, on the other hand, in which scenarios does comparative advantage fall short as an economic "law" in predicting Singapore’s trade patterns.
First, what is the theory of comparative advantage? According to the famous economist David Ricardo, a country has a comparative advantage in producing a good if it has a lower opportunity cost of producing that good compared to another country. In this context, the opportunity cost of a good is the amount of another good forgone to produce an additional unit of the good. When countries specialise and trade according to comparative advantage, consumption possibilities for both countries rise.
Reflect: what diagram or diagrams would be useful in demonstrating this economic theory?
According to comparative advantage theory, developed countries tend to specialise in and export capital, technology, and skill-intensive products while developing countries tend to specialise in and export labour and land intensive products. Trade patterns will consist of inter-industry rather than intra-industry trade, which refers to trade between countries exporting and importing the same types of goods. The question is whether Singapore fulfils the predictions of this model in the real world context. First, let us consider Singapore’s real world exports. Singapore is a net exporter of chemical products, machinery, and transport equipment. Considering that Singapore is a developed economy, the specialisation in such capital and technology intensive products is in line with comparative advantage according to factor endowments, meaning that Singapore does export goods that are capital and technology intensive because of her comparative advantage. Furthermore, Singapore exports high-skilled labour-intensive services, for instance in the areas of Bio-Medical Research & Development and other high-technology that requires skilled labour, further providing proof that comparative advantage theory explains Singapore’s patterns of trade.
Second, let us consider Singapore’s real world imports. Singapore is a net importer of non-oil products like food, beverages and tobacco and animal and vegetable oils. Considering that Singapore is a developed but small country, land and labour are expensive. Hence, the lack of specialisation in these land and labour intensive products is in line with comparative advantage, meaning that Singapore does import goods that are land and labour intensive because of her lack of these resources, because of her comparative disadvantage.
Third, in particular, Singapore has a large oil refining industry, largely based in Pulau Bukom and other offshore islands away from Singapore's mainland. In fact, Singapore imports crude oil to refine into oil-based products like diesel and petroleum. While much of the products are exported, some are for domestic use. This is the reason why Singapore is a net importer. While Singapore does not have any oil resources, it still has a comparative advantage in capital-intensive, high-tech, and high-skilled oil refining. Therefore, it would seem that, prima facie, comparative advantage theory does explain Singapore’s patterns of trade in the real world.
However, on the other hand, there are several patterns that do not confirm to comparative advantage theory. As Singapore is a transhipments hub and is known to be a famous hub for entrepot trade, much its imports are re-exported out of Singapore, and often Singapore is only a temporary destination for goods meant for re-export. Such transhipment trade is not related to comparative advantage but more due to Singapore’s locational or geographical, positional advantage along major shipping routes. Furthermore, the existence of intra-industry trade, where countries with similar factors of production trade the same types of goods, for instance in electronics exports and electronics imports, suggests that comparative advantage is not a perfect theory.
In conclusion, comparative advantage does explain some aspects of Singapore’s trade, but the real world context is far more complicated than theory suggests, and it is arguably the case that comparative advantage is far more likely to be a theory rather than an immutable economic law.
JC Economics Essays - This is a sample model economics essay on Singapore's trade patterns, on international trade, and on comparative advantage. This economics essay for H2 Economics at A level was co-written by two economics lecturers for a tutorial on international trade and globalisation. The essay was further edited and proofread by a Master's student who specialised in lecturing on international trade and globalisation at A levels. Perhaps, one could think about the various trade theories learnt. Think also about how this essay could be made more detailed, and how this essay can be improved. What else could the authors have done to make this an even better essay? Thanks for reading and cheers!
