A Summary: Singapore’s 2017 Budget Statement Aims to Build Singapore's Future Economy

This economics summary of Singapore's Budget 2017 is contributed by a former economics lecturer

What Happened? A Brief Summary of Budget 2017

In his 90-minute speech to Parliament on Monday, 20 February 2017, Singapore’s Minister for Finance, Mr. Heng Swee Keat, focused on future economic challenges facing Singapore.

With economic growth surpassing some economists’ expectations last year in 2016, Singapore's Budget 2017 looks to the future by earmarking S$2.4 billion to roll out multi-year economic schemes. 

These economic programmes are in addition to the industry-level transformation initiatives, totalling S$4.5 billion, rolled out in 2016’s budget.

But at a time of slowing economic growth in recent years, some S$1.4 billion is also set aside to help firms and workers, and provide additional economic support for individuals, households, and the disadvantaged, to help promote an inclusive society in Singapore. Even with economic support measures, the Singapore government still – nevertheless – wants to continue promoting a sense of self-reliance in companies, workers, and families, and encourage partnerships to drive the Singapore economy forward.

Some Economic Figures – Economic Stimulus

Broad economic stimulus measures were avoided, and instead the government aimed for targeted economic measures in 2017. As Minister Heng commented, "Budget 2017 is an investment in our economic transformation and social resilience." This is an important point. Budget 2017 is expansionary, with total expenditure coming to S$75.07 billion, some S$3.68 billion more than for FY2016.

The Singapore budget surplus, lifted by S$14.11 billion in net investment returns, is expected to be at S$1.91 billion, or 0.4 per cent of Gross Domestic Product (GDP). This is S$3.27 billion smaller than the FY2016 surplus. Nonetheless, Minister Heng reassured the House that "this budget position is prudent, while supporting firms and households in the midst of continued economic restructuring."

Singapore is Undergoing a Key Transition as Our Economy Matures

Budget 2017 comes at a time when Singapore is undergoing a "key transition" as the economy matures. Singapore’s open and trade-dependent economy reported 2 per cent growth for 2016, one of the slowest years since the 2008 global financial crisis. Structural economic shifts towards economic productivity are also weighing on companies and the labour market.

And the International Context is Changing and Evolving  

At the same time, deep economic shifts and economic uncertainties are happening rapidly and globally for trade and investments, businesses and jobs. In fact, Minister Heng commented that at the last Budget, issues like Brexit seemed remote and the US had just started the process of electing their new President. He further said that events since then were a stark reminder of how quick and unpredictable change could be.

Expand Overseas - Go, Go, Go 

Minister Heng unveiled a S$2.4 billion response, spread over four years, to execute the Committee of the Future Economy (CFE) recommendations. The report laid out economic strategies to help Singapore remain relevant amid a fast-changing world. Rejecting the inward-looking economic mood of some advanced economies, Mr Heng said that a key thrust is to help Singaporeans and companies tap overseas economic opportunities. In that vein, a S$600 million fund will be set up to support firms expanding overseas. Called the International Partnership Fund, it will co-invest with Singapore-based firms to help them scale up and internationalise.

Digital Economy – and Digital Economies

There will be economic help for small and medium enterprises to gain digital technological capabilities, and to use them effectively. Plans were also drawn up for research agencies like A*Star in Singapore to help companies tap innovation or co-develop intellectual property so that companies can grow.

But Singapore Will Support Firms and Workers in the Short Run

However, in a nod to the slow economic growth environment, Budget 2017 also responded to the near-term economic concerns of firms and workers. To tackle cyclical concerns, foreign worker levy increases for the marine and process sectors will be deferred by one more year, while S$700 million worth of public-sector infrastructure projects will be brought forward to support the construction sector. In addition, there will be enhanced corporate income tax rebates, while eligible businesses, especially smaller ones, will receive help in coping with higher wage costs. Some S$26 million per year will be set aside to help train workers looking to take new jobs or go for work attachments. Economic measures were also unveiled to support families, including more public housing grants and a personal income tax rebate of 20%, capped at $500, which is definitely a welcome measure in such tough economic times.

Sustainability – Spending Caps, Taxes, Carbon Taxes, and Water Taxes

With increasing spending demands, Budget 2017 put in place measures to ensure fiscal sustainability, while pointing to longer-term tax policy changes. For example, Minister Heng said that all ministries and organs of state will lower their budget caps by 2 per cent permanently. And a new carbon tax on emission of greenhouse gases was proposed, while water prices will be hiked by 30 per cent in two phases to reflect the increased cost of producing water, and to signal the importance of water to Singapore’s survival.

And What’s Next?

Singapore’s Parliament will convene on 28 February 2017 to debate the Budget, and then after the Budget Debates are concluded, the Committee of Supply 2017 debates will begin.

JC Economics Essays - Singapore Budget 2017 special. This short summary and opinion piece will help A level economics students understand the issues surrounding budget and the parliamentary process better. Thank you for reading and cheers! 

What is the economic impact of Brexit on Asian economies?

This economics post explains and analyses the possible economic consequences of Brexit on Asian economies and was created through synthesising a few economics essays. 

On 23 June 2016, in a historical moment that will be a discussion topic that would stand the test of time, citizens of the United Kingdom (the UK) voted in a national referendum on their continued membership in the European Union (the EU), ultimately choosing to leave. 

This huge event is called “Brexit”. 

What is the economic impact of Brexit on Asian economies? 

Brexit has negatively impacted global financial markets, causing economic volatility and huge losses of trillions of dollars in equity value. 

Meanwhile, the UK pound has seen the largest drop by any major world currency in recent history, and its largest drop since 1985.

On the surface, the UK leaving the EU would not matter that much economically to Asia’s economies. 

Although the UK is prima facie the world’s fifth-largest economy (now that is not the case any more, apparently as an immediate economic impact of  Brexit, because it has been overtaken by France), the UK is not actually one of Asia’s biggest economic customers. 

Except for Cambodia, Vietnam, and Hong Kong, most exports from most economies in Asia to the UK are relatively small as a percentage of total economic output. 

For Singapore, a small and open economy located in Southeast Asia, the UK is a relatively small customer. Singapore’s exports to the UK totalled S$7 billion in 2015, out of S$530 billion in total exports. 

Quite simply put, in the immediate or short term, the economic impact has been rapid and direct so far. In the immediate term - it's the economic impact on markets and currencies that matter currently. 

But the real and longer term impact of a “Brexit” – for Asia and the rest of the world – is much bigger than just merely market or economic volatility. 

The real economic impact of Brexit would be more subtle than any immediate effect on trade or markets. 

It would represent an economic slowdown – and maybe the first steps of a economic reversal – of the globalisation that has defined markets in recent decades. 

There are many definitions of globalisation, but in this case, globalisation refers to the increasing integration and interdependence of the world’s economies arising from increased international trade and greater international mobility of factors of production like capital, labour, and enterprise across international borders. 

Asia has a lot to lose from this rollback of international trade or decline in economic globalisation. 

Many Asian countries rely heavily on international trade. 

For instance, Singapore’s international trade stands at 351 percent of its GDP, and it amounts to 439 percent of Hong Kong’s GDP. Growth in international trade has been slowing in recent years, and Brexit could slow trade and growth down further. 

For example, the UK takes fully three-quarters of Singapore's investments in the EU with big companies like Comfort DelGro and Frasers having an international presence in that country. The UK out of EU could lead to significant fall in Singapore's exports to the EU, and Singapore international businesses could suffer write-downs in economic value on their balance sheets.

If there is a rise in protectionist sentiment in the UK, this might spread to other countries as well. 

Protectionism refers to economic policies aimed at restricting international trade between countries, designed to protect domestic businesses and workers from international competition, while free international trade refers to the exchange of goods and services across international boundaries. 

Recently, other than just the UK government, many governments (and a famous US Presidential candidate from "across the pond") have been adopting or promoting protectionist measures in the belief that this would offset the impacts on their economies from international trade and globalisation.

China would likely have some major economic concerns. The EU is an even bigger destination for Chinese goods than the United States.

The EU is China’s largest trading partner, and as China enters an era of slower economic growth, the timing of the breakup of the European Union couldn’t be worse.

For China, the UK's decision to eventually extricate itself from the European Union’s common market will be a disappointing move. Chinese Premier Li Keqiang has taken a particular economic interest in the UK, reciprocated in recent years by Chancellor of the Exchequer George Osborne. Last fall, London became the first international financial hub to issue renminbi-denominated debt after Xi Jinping’s visit there. Brexit will be an economic setback for the ongoing internationalization of renminbi as London’s international relevance as a global financial hub is diminished as a result of Brexit. 

Brexit could also challenge some of the international trade deals focused on further opening the rest of the world to ASEAN economies. The Trans Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP), for example, are aimed at cutting international tariff barriers and promoting international trade with some of the world’s largest economies. 

Brexit could also mark an economic setback for China’s long-term economic goal of a free trade agreement with the EU. London had emerged as one of the most eager advocates for a China-EU FTA. 

With the UK now exiting the economic bloc, none of the other major EU states seem keen to ink an economic deal with Beijing. An FTA with the UK alone might be politically simpler to negotiate, but will not have nearly the same economic benefits for China. 

Remember that a Free Trade Area (FTA) refers to a trade bloc where more than two countries agree to engage in free trade with one another while maintaining members’ own individual levels of external barriers against non-member nations.

In the longer term, no one really knows what the economic impact will be - but it certainly will not be a walk in the park for UK or Asia, or Singapore, and only time will tell if Brexit really was a good economic decision ... 

or if the economic experts were right in saying that this was one of the worst economic decisions of all time. 

JC Economics Essays is an economics website which has a wide and useful range of economics resources and free lesson materials for students' own use, such as economics essays at the A level standard (H1, H2, H3, and A level standards), and undergraduate and masters economics essays. The main focus is on A level economics essays, but GCE, GCSE, AS, AO, and H1/2/3 economics essays are in this site too. In particular, JC Economics Essays has model A level economics essays and responses that students could use as an easy and relevant reference for learning, as well as relevant tips and techniques for writing strong and well-argued essays. A whole range of useful case study tips, essay writing techniques, and relevant opinion pieces on a relevant range of economic topics will help you learn economics effectively. Thank you for reading, and cheers.

Explain how benefits to the USA economy can arise from specialisation and exchange. [10]

This economics paper explains how the United States of America’s (USA) economy benefits from specialisation and exchange. 

A country has a comparative advantage in producing a good if it has a lower opportunity cost of producing that good as compared to another country. According to David Ricardo’s law of comparative advantage, the USA will specialise in the production of goods in which it has a comparative advantage in, and use it to trade for goods in which it has comparative disadvantage in. International trade refers to the exchange of goods and services across international boundaries. The theory of comparative advantage theorises that trade arises because different countries have different opportunity costs.

By specialising and exporting goods in which the USA has a comparative advantage in while conversely importing goods in which it has a comparative disadvantage in, she would be able to increase her overall consumption of goods and services as compared to the situation under autarky – defined as the situation without trade. Hence, USA citizens would be able to consume beyond their Production Possibilities Curve (PPC) as a result of increased consumption possibilities. According to ‘The World Factbook’, agriculture and services comprise 1.2 and 79.6 percent of USA’s gross domestic product (GDP) in 2014 respectively. Gross domestic product is defined as the total value of final goods and services produced in a country's domestic area over a given period of time, usually a year. A developed country with a strong technological and capital base such as the USA would have a comparative advantage in the production of high-tech and high-value services, such as banking and shipping. In turn for exporting these, it imports goods such as agriculture from other countries which have a comparative advantage in producing agriculture, such as land-abundant Thailand, or a labour-abundant country such as the People's Republic of China which would produce labour-intensive economic products.

Aside from higher consumption possibilities, there exists other benefits to the USA economy arising from international trade. International trade allows for the USA to produce for a larger world market, thus enabling economies of scale to be reaped. Economies of scale refer to the fall in Long Run Average Costs (LRAC) as output increases. Foreign competition also forces domestic producers to innovate, cut costs and improve product quality. A case in point would be the consumer electronics industry – where American multinational technology company Apple has had increased competition from foreign competitors such as rival Samsung. The exploitation of economies of scale and greater competition improves both productive and allocative efficiency, thereby enabling the USA to better utilise scarce resources in maximising its economic welfare.

Opening up to international trade helps the USA attract Foreign Direct Investment (FDI). FDI arguably results in not just technological transfer, but also the transmission of ideas, technical expertise, and managerial skills, all of which are important contributing factors to the USA’s long-run economic growth. According to ‘The World Factbook’, the USA is the largest recipient of Foreign Direct Investment (FDI) in the world, with a total of 2.8 trillion USD in 2013.

Besides attracting FDI, engaging in international trade also facilitates structural economic change. Developing an economic structure that supports the exporting of goods leads to the expansion of services such as shipping, air travel, banking and finance services. The economy would therefore mature and develop, becoming less dependent on manufacturing, diversifying into higher-value services. This is evident in the USA economy, where the industry sector only comprises 19.2 percent of USA’s GDP, as compared to the service sector which comprises 79.6 percent.

In conclusion, specialisation and international trade brings about many benefits to the USA economy, and are not limited to those listed above.

JC Economics Essays - This is a model H1/H2 A level Economics essay for a part (a) question of 10 marks. This economics response was kindly contributed by Wilson YWS, a former economics student, and (after editing by an experienced economics tutor) is generally quite well written, especially for a 10 mark question under examination conditions. We can look forward to more H1 economics or H2 economics essays from Wilson in the future. 

However, how can this economics essay be even better written? What other salient points should have gone into the construction of this essay, and what economics diagrams would have been drawn to give this economics essay an even better mark? Also, conversely, what did this economics student include that was good to have but not really necessary? Do always think through the essays that you write and seek to do better each and every time. 

Thank you for reading, and cheers. 

Explain how benefits to the UK economy can arise from exchanges, arising from specialisation, to address the central problem of economics. [10]

This paper explains the benefits to the UK (United Kingdom) economy of exchanges arising from the price mechanism, arising from specialisation, that addresses the central problem of economics.

First and foremost, the central problem of economics, according to Lord Lionel Robbins of the London School of Economics, is basically about humans having unlimited wants, but because of limited resources of the factors of production of land, labour, capital, and entrepreneurship, people cannot have everything that they want. This is the situation of scarcity necessitating rational choice, given finite resources on earth to meet unlimited wants. 

There are a few keywords and core concepts that we need to address before we start on our essay. Exchanges refer to the movement of goods and services in exchange for money, in a free market economy. Specialisation refers to the division of labour that occurs in a free market economy that uses the price mechanism. Specialisation means that individuals or firms produce one good, and can thus reap economies of scale from it, where economies of scale refer to falling long run average costs (LRAC) a the scale of output increases. The central problem of economics can basically be addressed through the price mechanism in a free market economy, which refers to the intersection of demand and supply, where, as Adam Smith famously said, prices act as an “invisible hand” coordinating the factors of production to allocate goods in the economy, solving the problems of "what" to produce, "how" to produce, and "for whom" to produce those very goods. This paper now explains the benefits to the UK economy of exchanges arising from specialisation.

First and foremost, the price mechanism and the concomitant specialisation that arises from it lead to efficiency in the UK market. There are many kinds of efficiency, but according to economic theory the price mechanism in a competitive market would be productive and allocative efficient, ceteris paribus. Productive efficiency means that the market produces at the lowest possible average price, while allocative efficiency means that the market produces also where P = MC, where MC means marginal costs. Alternatively, allocative efficiency can also be defined as where the market allocation is the socially optimal level for society, under conditions of no market failure. For example, if UK farmers specialised in the production of various crops  and then exchanged to get what they need for their daily needs, then the agricultural produce market would achieve productive and allocative efficiency, because UK farmers would produce at the bottom of their LRAC and thus achieve the Minimum Efficient Scale (MES), the lowest point of the LRAC. This would ultimately benefit UK consumers because of lower prices and greater output, the greatest benefits of productive and allocative efficiency.

At the same time, beyond microeconomics, this question also asks about the UK economy. For the larger economy, specialisation would lead to an economy that could exchange goods internationally. International trade is defined as the exchange of goods and services across international boundaries. If the UK specialises, for example, in the production of capital intensive goods, such as cars and technological products, and then trades with another country, say China which specialises in the production of labour intensive goods, such as clothing, then trade can take place, which could increase UK’s actual growth, as AD  = C + I + G + (X-M). This is basically the benefit of specialisation and exchange on the international stage, called comparative advantage, where one country specialises and produces a good it has a lower opportunity cost of producing, and then exchanges it for a good in which it has a comparative disadvantage in, which leads to a higher consumption possibilities. 

In conclusion, it can be argued that exchange and specialisation to solve the central problem of economics can benefit the UK economy in terms of promoting productive, allocative efficiencies, as well as international trade because of comparative advantage for the benefit of the UK's economic growth. 

JC Economics Essays - This excellent economics essay, written under examination conditions, was kindly contributed by S. S., who achieved an grade A for H2 Economics at the A level examinations and also a Merit for H3 Economics. He achieved a university place at the London School of Economics and received good recommendations and testimonials from his economics and civics tutors. Special thanks for the kind and useful contribution. What can we learn about writing good economics essays from this sharing? Thank you for reading, and cheers. 

Explain why trade occurs between Singapore and its trading partners. [10]

International trade refers to the exchange of goods and services across international boundaries. In this essay, I will be explaining why trade occurs between Singapore and its partners such as China, the United States, and other countries of the world.

The law of comparative advantage states that a country is able to enjoy higher consumption levels if it were to specialise in goods in which it has comparative advantage in, and trade the good for other goods in which it has a comparative disadvantage in. For mutually beneficial trade to occur, the terms of trade, which is the exchange rate of the 2 goods between Singapore and its trading partners, must lie within the relative opportunity costs of producing the goods of the 2 countries involved. This theory explains that trade arises because different countries have different opportunity costs of producing different goods. This is due to differences in supply conditions which arise because of differences in factor endowments, the relative abundance of the factors of production. Factors of production such as land, labour and capital are unevenly distributed across different countries. For instance, land abundant countries like Australia and the USA can produce land intensive products such as agriculture more cheaply than land scarce countries like Singapore. Labour abundant countries like India and China can produce labour intensive products such as clothing and footwear more cheaply than developed countries with higher labour costs like Singapore and the USA. Developed countries with a strong technological and capital base like Japan, Korea and Singapore have a comparative advantage in the production of ‘high-tech’ products such as computers, electronics and transportation equipments.

It is thus clear that Singapore’s economy is heavily dependent on trade. Not only are exports the main engine of growth, Singapore also imports inputs to produce these exports and imports most of its consumer goods like food, clothing, footwear, and households appliances. However, not all of Singapore’s imports are used for domestic consumption or as inputs for domestic production. Instead, many goods are imported into Singapore only to be re-exported out to the other countries. Such trans-shipment takes place because Singapore is a main shipping hub located strategically along the major shipping routes. One of the high volume of trans-shipments going through Singapore, the trade figures show the value of both Singapore’s imports and exports to be greater than her Gross Domestic Product (GDP). One way of measuring if a country has a comparative advantage in the production of a particular good is to look at the net export figures that are specific to that good. Singapore is a net exporter for chemicals and chemical products, machinery and transport equipment, hence suggesting a comparative advantage in these goods. Given that Singapore is a developed country, the specialization in such capital and technology intensive products seems to correspond to comparative advantage theory. Conversely, Singapore is a net importer of food, crude materials, animal and vegetable oils. Being a small but developed country, Singapore has expensive land. Hence, the lack of specialization in these land intensive products also seems to correspond to comparative advantage theory.

In conclusion, due to the nature of Singapore’s small and open economy, this makes it even more important for her to trade.

JC Economics Essays - This essay is a H1 A levels Economics essay on why trade occurs between Singapore and its trading partners, contributed and kindly shared by HH in April 2015. Special thanks to HH for her kind contribution. 

In this essay, the author's writing is clear, to the point, and explains economic theory alongside real world examples and the context that is required to answer the question. This paper is well crafted and thought through carefully, and deserves a high mark, especially if it is written under examination conditions in a real economics examination. 

How can you write clearly, accurately, and relevantly, addressing the requirements of the essay question? Thank you for reading and cheers! 

Discuss if Singapore is among the economies worldwide that have the most to gain from globalisation. [25]

Globalisation refers to the increasing integration and interdependence of the world’s economies arising from increased trade and greater international mobility of factors of production like capital, labour, and enterprise. In other words, globalisation is an extension of international trade, where in addition to increasing trade in goods and services, it also involves rising mobility of resources like labour and capital. Generally, the forces driving globalisation can be linked to improvements in technology resulting in the significant lowering of transport costs and communication costs, and the historical movement away from protectionism after the Second World War. To discuss to what extent a country gains from globalisation, there is a need to analyse the economic benefits and costs of increased trade in products as well as the benefits and costs of increased geographical mobility of labour and capital. This paper argues that, on the one hand, Singapore benefits from international trade and increased labour and capital mobility, but on the other hand these benefits come at a cost, with their limitations and negative impacts.

First, there are benefits from international trade, which many countries can enjoy, but Singapore can arguably enjoy to a greater degree given her small size and openness to free trade. First, Singapore, just like most other countries, can benefit from higher consumption possibilities arising from specialisation and trade according to comparative advantage, which would increase her material living standard. A country is said to have comparative advantage in the production of a good when it can produce the good at lower opportunity cost 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. It can be argued that a rise in the consumption possibilities allows Singaporeans to enjoy a higher material living standard, by having a larger bundle of goods and services to consume, and hence, Singapore stands to benefit economically from globalisation.

Second, trade can be an “engine of growth” – trade enables small or developing economies to overcome the lack of domestic demand in order to achieve fuller utilisation of its resources, and Singapore in its early days was one of the main beneficiaries of this situation. For example, Singapore pursued a policy of Export Oriented Industrialisation (EOI) and reaped economies of scale for producing exports for the world market, which led to low unemployment and high economic growth for many decades in Singapore. In addition, increased efficiency of domestic producers arising from greater competition from imports and also the exploitation of economies of scale are also other benefits of trade. This increase in both AD and AS, leading to long run sustained, and non-inflationary economic growth, was possible because of trade. Conversely, it can be argued that countries such as Latin America after WWII which were inward-looking and focused on Import Substitution Industrialisation (ISI) were amongst economies which did not benefit from globalisation.

However, there are costs of increased free trade which Singapore has to deal with, which may not affect much larger economies. First, there is the danger of potential over-reliance on external demand resulting in greater macroeconomic instability. Singapore’s macroeconomic goals of low and stable inflation rates, economic growth, and low unemployment may easily be adversely affected or suddenly impacted by worldwide recessions or worldwide booms. This, however, is inevitable given that Singapore is a small and open economy which is highly dependent on trade as an engine of growth, and therefore when incomes fall in other countries, Singapore can be rapidly and adversely affected by falling export revenue, which lowers AD and results in unemployment and falling growth, while conversely booms in other countries may lead to rising demand-pull inflation in Singapore. Larger economies, conversely, may not be as affected as Singapore.

Furthermore, rising structural unemployment is another cost of international trade, as trade causes less competitive sectors to decline and more competitive sectors to expand. Structural unemployment refers to the situation of a mismatch of skills in the economy, where workers in the declining sunset industries are unable to find jobs in the new, rising sunrise industries due to a lack of requisite skills and training. For example, due to rapid structural changes in Singapore’s economy as a result of trade, there are many older and relatively unskilled workers who are unable or unwilling to upgrade their skills, and therefore cannot take up many of the new jobs that are available. Hence, there are real and pressing costs to the benefits of greater free trade arising from globalisation.

In addition to more global free trade, globalisation also impacts factor mobility – it can benefit Singapore in terms of the increased flows of labour and increased capital mobility, all of which help Singapore’s long run potential growth. Let us first address labour. First and foremost, labour shortages in Singapore can easily be made up through increasing the numbers of Foreign Talent or foreign workers. For example, in fields such as construction and nursing in healthcare, local domestic shortages are easily made up through imports of foreign labour. Hence, it would seem that increased labour mobility benefits Singaporeans.

Second, with respect to capital, Singapore benefits from increased capital accumulation, arising from increased Foreign Direct Investment as well as short term financial capital inflows. Capital accumulation enhances long-run growth as it enables a country to increase the quantity and quality of capital, and countries like Singapore can increase their levels of capital, technology and skilled labour. For instance, MNCs investing in Singapore bring about capital investments, technology, and skilled labour to Singapore, increasing her potential capacity and thus raising her potential growth. Furthermore, capital owners in Singapore can earn higher returns through investing in developing countries, especially in neighbouring ASEAN countries, and lower skilled labour from developing countries could earn higher wages from working in Singapore. Therefore it would seem that while foreigners benefit from globalisation’s impact on Singapore, Singaporeans benefit much more.

However, there are also costs of increased labour mobility. First, it can be argued that there would arise a greater degree of structural unemployment in Singapore as domestic workers may be unable to compete with cheaper foreign workers. This applies to both skilled and unskilled labour in Singapore. For instance, the lower-skilled elderly workers would be hardest hit by the influx of cheaper foreign labour, who would depress wages.

This leads to greater income inequality in Singapore, and by extension to developed economies worldwide: while developed economies’ lower-skilled workers are often internationally immobile, poorly trained, and uneducated, and thus would face depressed wages due to a rapid influx of cheap low skilled foreign labour, most developed economies’ higher-skilled labour is internationally mobile, often headhunted and recruited worldwide, and hence face rising wages rise due to increase global competition for such labour. For instance, in Singapore, the lower-skilled elderly workers are often facing structural unemployment or employment in lower-end jobs, whereas affluent Singaporeans are able to accept jobs worldwide due to globalisation. The resultant consequence is that the Gini Coefficient in Singapore is consistently above 0.4, which suggests rather high income inequality. This inequality may be a major cost of globalisation.

Furthermore, compounding the issue of income inequality is the real and pervasive social cost of Singapore adapting to the influx of foreign labour, which could for example strain Singapore’s social amenities. For instance, housing, schools, hospitals, and recreational facilities are often overcrowded due to rising population growth; there has often been social discontent due to erosion of local culture, values, and way of life. Therefore labour mobility brings about costs and benefits to Singapore.

There are also real and pervasive costs of increased capital mobility. First, allowing free movement of short to medium term capital can result in exchange rate fluctuations, and, second, stock and property market bubbles which causes increased macroeconomic instability. For instance, because Singapore is a financial hub with free capital mobility, there are often rapid capital inflows leading to asset bubbles in the stock and property markets, especially due to the USA’s Quantitative Easing and expansionary monetary policy. In terms of exchange rate fluctuations, these are often smoothed out through the use of Singapore’s managed float policy which limits the volatility of free, flexible exchange rates. Therefore capital mobility brings out benefits and costs to Singapore.

In conclusion, Singapore has more to gain from globalisation compared to larger economies, because first and foremost, without trade, Singapore’s small yet open domestic market will be insufficient or inadequate to generate much national income, reap much economies of scale, and experience much product differentiation. Singapore therefore attains most of the benefits of trade while possessing the policy tools and strategies to minimise the costs of freer trade. Being geographically small, highly urbanised, having good transportation infrastructure, minimal social security support, and a relatively well educated workforce, it is comparatively easier for Singapore to retrain and re-skill its workers to counter structural unemployment arising from increased globalisation. Due to strong economic growth in the past, a prudent and efficient government and a high savings rate, Singapore arguably has more than sufficient resources to invest in social amenities in order to cope with the rising population caused by immigration. While unrestricted flow of short-term capital is necessary for Singapore to function as a financial centre, its substantial foreign currency reserves allow Singapore to be relatively safe from potentially destabilising speculative attacks on its currency. The downside is that being a developed economy, it is more likely to experience worsening income distribution than a developing economy and Singapore finds it hard to significantly improve income redistribution without negatively affecting the incentive to work and invest. Therefore it seems clear that Singapore has the correct, specifically targeted policy tools to ensure that it ameliorates the negative impacts of globalisation while maximising the gains. Overall, it seems Singapore has significantly much more to gain than lose from globalisation and thus could arguably be one of the countries which can gain most out of globalisation.

JC Economics Essays - This economics question is adapted from an actual H2 Economics A level examination question, and this is a specially crafted response to the question co-written by two economics tutors for an economics tutorial on international trade and globalisation. The main topic in this economics essay is globalisation. Looking at the essay response, what are good economics arguments that can be used for examinations? What is good about this economics paper that can be adapted and used in economics assignments and tests? What are areas that need to be explained further or further explicated clearly? Remember to always answer the question that is posed, and think of ways in which the question can be approached. Thank you for reading and cheers!

To what extent does "traditional" or "standard" economic theory explain Singapore's FTAs? [15]

A Free Trade Area (FTA) refers to a trade bloc where more than two countries agree to engage in free trade with one another while maintaining members’ own individual levels of external barriers against non-member nations; for instance, the North American Free Trade Area (NAFTA) and the ASEAN Free Trade Area (AFTA). This economics paper discusses the extent to which economic theory, in particular trade creation and trade diversion, explains Singapore’s FTAs, while arguing that non-traditional and other non-economic considerations also play a role in explaining Singapore’s FTAs. 

First, how do the standard economic theories of trade creation and trade diversion explain FTAs in theory? Trade creation arises when entry into a FTA causes the production of a good to be shifted from a less efficient to a more efficient producer, while trade diversion arises when entry into a FTA causes the production of a good to be shifted from a more efficient to a less efficient producer. A country joins a FTA if it expects to benefit from overall trade creation; economic theory suggests that a country chooses whether or not to enter a FTA based on whether trade creation outweighs trade diversion. When countries join a FTA, the country gains from a rise in export demand and export prices, resulting in an improvement in the terms of trade. When there is trade creation, the country benefits from importing a good at a cost that is lower that what it could produce domestically. Hence when there is trade creation, the country benefits from joining a FTA. Conversely, when there is trade diversion, the country ends up paying more for its imports as it is now importing from a relatively more inefficient foreign producer and this worsens its terms of trade. If the rise in import prices exceed the rise in export prices, the terms of trade worsens, hence the country should not join the FTA. 

However, despite standard economic analysis, since Singapore has no initial trade barriers for almost all goods and services, it experiences neither trade creation nor trade diversion, so Singapore’s decision to join an FTA must be based on other considerations other than trade creation and trade diversion, such as gaining new export markets, creating more transhipment business, attracting FDI, enhancing bilateral relations with its neighbours, and improving cooperation on security issues. 

This economics paper now discusses other possible reasons that could suggest why countries choose whether or not to enter an FTA with Singapore. The first alternative reason could be that the signing of an FTA with Singapore enables the country’s exports to bypass trade barriers and gain access to a third party market that also has an FTA with Singapore. For example, China may get to enjoy tariff-free access (or at least tariff reductions) to the USA if they were to export their goods through Singapore rather than exporting their goods directly to the USA. 

Secondly, Singapore may also be offering some other benefits to a FTA partner. For example, Singapore could offer to transfer knowledge and technology to the other country, and this would result in the signing of FTAs despite the fact that other countries already know that Singapore has little or no trade barriers on their goods. 

Thirdly, extradition treaties and cooperation in security issues could also be part of the agreement. For instance, countries could sign FTAs in Singapore in order to ensure that wealthy tax evaders do not escape the law in their country by bringing their wealth to Singapore, and these tax evaders can be extradited back home to face trial in their home countries. Hence, political considerations also come into play alongside economic ones.

Fourth, and arguably most importantly, by negotiating a vast network of FTAs, Singapore enhances its position as a shipping hub because Singapore’s transhipment is an important aspect of the Singapore economy. Transhipment refers to the shipping of goods to an intermediate destination, on their way to their final destination, and this is a major aspect of Singapore’s maritime trade. Transhipment increases Singapore’s earnings from port and shipping related services as more ships stop at Singapore to offload the goods that are meant for re-export. The FTAs also draw in foreign investments because foreign firms need to set up processing operations here in order to meet the requirements stipulated by the Rules of Origin. Hence, transhipment operations could explain why Singapore has signed so many FTAs.

In conclusion, trade creation and trade diversion go a small way to explain why Singapore enters FTAs, and it can be argued that non-economic reasons go a longer way in explaining why Singapore enters FTAs with other countries, because Singapore’s lack of tariffs does not permit her to have trade creation, which suggests that other considerations are more important. Thus, standard economic theory based on trade creation and diversion only explains at best a small part of Singapore's FTA networks, whereas practical real world considerations like third parties bypassing trade barriers, technological transfer, political considerations, and transhipment explain why Singapore signs FTAs to a very large extent. In my view, the most important explanation for Singapore’s FTAs is the rise of globalisation, which has led to the need for third parties to bypass trade barriers, increased international mobility, and led to the rise of the importance of non-economic, political reasons for such agreements.

JC Economics Essays - H2 Economics essay on trade creation and trade diversion, and Singapore's Free Trade Agreements. This economics essay was crafted by two co-authors to explain the economics ideas and concepts of trade creation and trade diversion for an economics tutorial on economic integration (a topic closely related to international trade and globalisation). Remember to reflect on the essay as you read it. Focus on the evaluative conclusion for a moment. What is good about the evaluation, and what can be made even better? What would be a better way to craft the evaluative conclusion? Thank you for reading and cheers! 

Explain whether Singapore’s trade patterns follow the outcomes as predicted by the economic theory of comparative advantage. [10]

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! 

Discuss whether the use of protectionist policies can ever be justified during a period of worldwide recession or whether governments should follow Chinese Premier Wen Jiabao’s advice to adopt a policy of greater free trade. [N2013 25]

Protectionism refers to the imposition of economic policies aimed at restricting trade between countries, designed to protect domestic businesses and workers from foreign competition, while free trade refers to the exchange of goods and services across international boundaries. Recently, governments have been adopting protectionist measures in the belief that this would offset the impacts on their economies from the worldwide recession. Fundamentally, the question is: during a period of worldwide recession, can protectionism be justified, or should governments adopt a policy of free trade, to address the macroeconomic problems of rising unemployment and lack of economic growth? This economics paper argues that, while some would argue that protectionist policies can be justified during a worldwide recession, governments should still follow Premier Wen’s economic advice to pursue a policy of greater international free trade.  

There are many methods used by various countries to protect their economies, but fundamentally these methods either discourage imports or encourage a country’s own exports.  For example, a tariff is a tax levied on imports, where a specific tariff is levied as a fixed charge per unit while an ad valorem tariff is levied as a fraction of the value of a unit. A tariff raises import prices, hence causing consumers to switch from imports to locally produced goods. An import quota is a direct restriction on the quantity of imports. The quota is typically enforced by issuing licenses to a group of individuals or firms. The quota directly reduces the availability of imports, hence pushing up prices of imported goods. Per unit output subsidies can be given to help local producers lower their production costs, which enable them to better compete with more efficient foreign producers. These methods, among others, arguably can protect the domestic economy during a period of recession. 

On the one hand, it can be strongly argued that protectionism can be justified on grounds of employment protection. Protectionism arguably helps the economy against both demand-deficient and structural unemployment. First, during a period of recession, protection may be used to reduce demand-deficient unemployment, where there is insufficient AD to fully utilise the unemployed resources in the economy, because imports are discouraged while exports are encouraged, which theoretically boosts AD, shifting it to the right. Furthermore, trade restrictions are sometimes imposed during an economic downturn to reduce cyclical unemployment. For example, under trade union pressure, governments may decide to curb imports that are in direct competition with domestically-produced goods in order to preserve the jobs in these industries. 

Second, protectionism can also be given to declining sunset industries to slow down their contraction, thus allowing more time for labour to be retrained and re-channelled to other growing sunrise industries. This reduces the degree of structural unemployment, which can be defined as the unemployment arising from the mismatch of skills in the industry as the structure of the economy changes. Many developing countries, especially China, and developed economies, such as Singapore, face structural unemployment as the production structure of the economy as well as demand conditions change and mature. Hence, protectionism can be justified through employment protection. 

However, there are many limitations of protectionism in addressing a situation of worldwide recession. First, protectionism creates a “beggar-thy-neighbour” effect whereby the exports, output, and employment of its trading partners are reduced, which in turn curbs the exports, output, and employment of the country initiating the protectionist measures. Secondly, with protectionism, trading partners are likely to “retaliate” and impose their own import restrictions, again further causing the initiating country’s exports, output, and employment to subsequently suffer even more. For instance, China may face countermeasures if it were to implement protectionist measures on the USA, which would not benefit both countries. 

Furthermore, although the initial intention may only be to offer temporary protection to help smoothen the adjustment and reallocation of resources, protection is politically difficult to remove, once it has been put in place. Vested interests are created and the industries concerned will inevitably resist any removal of trade barriers. In the long run, the country might end up having resources being locked in inefficient ‘sunset’ industries, hence depriving its expanding ‘sunrise’ industries of precious economic resources. For instance, this occurred in Latin America after WWII under the system of Import Substitution Industrialisation, as contrasted with the success of the East Asian countries which pursued Export Oriented Industrialisation. All these limitations reduce the usefulness of protectionism in addressing a situation of worldwide recession. 

On the other hand, other than the limitations of protectionism, international trade might in fact help a country tide a recession. First, developing economies sometimes lack sufficient domestic demand to enable full utilisation of resources. Trade allows such countries to overcome domestic demand constraints by giving them access to larger world markets. With additional demand coming from exports, greater utilisation of otherwise unemployed resources raises output, income, and employment. For instance, Singapore, a small and open economy, depends upon trade as an engine of growth for her national income and employment. Furthermore, rising export demand further stimulates investments, causing the AS to shift outwards faster. These investments, for example in infrastructure facilities like ports and storage warehouses and export industries, in fact allowed Singapore to expand its export sector. Seen from these perspectives, trade arguably acts as an engine of growth as it enables both AD and AS to increase faster than under autarky, and therefore possibly contributes to a country’s long run sustained economic growth.

Second, accompanying the development of merchandise trade would be the development of services like shipping and airfreight, air travel, banking and finance, and tourism. With time, a developing economy experiences structural change and becomes less dependent on merchandise trade and manufacturing, instead diversifying into services, thus becoming more like a developed economy. For instance, countries like Singapore have developed from a third world to a first world country by experiencing structural change from international trade. Therefore, governments like China should also pursue a policy of free trade to benefit from economic diversification, maturation, and structural change, which could arguably ameliorate the impacts of recession. 

In conclusion, while protectionism can be politically expedient and may even ameliorate unemployment – both demand-deficient and structural unemployment – in the short run, it should not be used as an active policy to address recessions. This is because of the limitations of protectionism as well as the foregone benefits of international trade as an engine of growth that can also provide fundamental structural change to the economy, which would put it in good stead when the world economy recovers. Alternatively, large economies like China could also encourage local, domestic demand through the use of expansionary monetary and fiscal policies, and that could drive their economic growth during periods of recession, because they have the option to depend on domestic demand, whereas smaller and more open economies like Singapore would have to depend on international trade and globalisation to drive their economies. Thus, in the final analysis, the policy options taken to address the problems really depend on the countries involved, but to a large extent international trade is a much better policy than protectionism.

JC Economics Essays: This economics essay is a sample answer to an adapted economics question from the H2 Economics A Level paper, November 2013. The response was co-written by two economics lecturers for a tutorial class, in order to teach about protectionism and international trade for the A levels examination. However, this particular economics essay is only one possible response to the question - what could be done differently? Furthermore, how would you improve upon this answer, what real world examples could you use to buttress your arguments, and what can you do to improve this essay? Remember to think through the answers and how you can make economics arguments better. Thanks for reading and cheers. 

Globalisation and international trade have opened up new opportunities in the world. While a globalised international, world economy brings great benefits to the US economy by opening up new markets for American exports, it has subjected American companies and their workers to unfair overseas competition, which justifies protectionism for these affected industries. [25]

What is globalisation? Globalisation refers to the increasing integration and interdependence of the world’s economies arising from increased trade and greater international mobility of factors like capital, labour and enterprise. There have been a lot of benefits arising from globalisation. Globalisation has benefited the American economy vastly as it has enabled ordinary Americans to enjoy greater consumption possibilities and the engine of growth of the world's most powerful economy. However, it can be argued in a sense that the opening of new markets has also subjected American firms and workers to unfair foreign anti-competitive practices like dumping of cheap, low cost goods, and loss of jobs in the secondary sector of the American economy. 

Comparative advantage is the main theory for international trade. The law of comparative advantage states that a country is able to enjoy higher consumption levels if it was to specialize goods in which it has comparative advantage in, and trade for other goods in which it has a comparative disadvantage in. 

[Insert diagram on production possibilities of USA and Mexico]

Trade enables the USA to consume at any point along its consumption possibilities curve, which is beyond its own PPC. At the same time, Mexico also benefits from international trade. Therefore, both countries are able to consume more goods and services. Hence, it can be seen that when the opportunity costs of producing different goods differ between 2 countries, specialization and trade according to comparative advantage is beneficial to both countries. As such, increased exports to new markets would enable USA to have higher consumption possibilities as compared to a situation of autarky. 

[Insert diagram on AD and AS increasing]

Increased exports also allow full utilization of resources, which increases both AD and AS. Increased exports to new markets allow USA to overcome their domestic demand constraints by giving them access to larger world markets. With additional demand coming from exports, greater utilization of otherwise unemployed resources, output, income and employment. Since AD = C + I + G + (X – M), AD shifts out and real output increases, but price level remains unchanged. Rising export demand further stimulates investments, causing the AS to shift to the right in the long run, resulting in greater output and a lower price level, hence ensuring long run, sustained economic growth in the economy.

However, on the other hand, the globalized economy has also subjected American companies and workers to unfair foreign anti-competitive practices like dumping, which refers to the situation where foreign imports are sold below cost because foreign firms are trying to drive out domestic firms to gain market power. This is a situation that seems somewhat unfair to developed economies.

Also, labour unions in developed economies continuously argue that imports from developing countries are cheap because they artificially keep costs down by subjecting their workers to ‘sweatshop’ like work environments and by paying them depressed wages.

Thus, to curb this problem of unfair overseas competition, many in the USA lobby for countervailing duties (i.e. import tariffs) to be imposed to raise import prices so that they are more in line with prices of locally produced goods. This is known as protectionism, defined as the act of imposing economic policies aimed at restricting trade between countries, designed primarily to protect domestic producers and workers from foreign competition. Methods of protectionism include import tariffs, import quotas, subsidies, voluntary export restraints (VER), foreign exchange restrictions, physical barriers to entry, and technical barriers to entry.

However, on the other hand, protectionism results in greater allocative inefficiency as domestic firms have less drive to improve operating efficiencies and minimize costs. Also, protectionism results in a ‘beggar thy neighbour’ effect where exports, output and income of its trading partners are reduced, which then curbs exports, output and employment of the former. All these indirectly harm American consumers and the American economy in general. 

On top of the costs of protectionism, there are actually benefits to be reaped from the competition from imports. Firstly, competition from foreign imports forces local producers to innovate, cut costs and improve product quality. Local consumers thus enable enjoy lower prices and higher product quality form both imports and domestically produced goods, thus putting the majority of the Americans at an advantage, whereas protectionism only benefits the producers. Secondly, countries may be unable to produce some goods domestically because of the lack of key resources. Importing such goods will thus widen consumer choice. Product variety is also increased when intra-industry trade occurs as consumers get to enjoy not only domestic versions but also imported version of a given type of good, thus benefiting the majority of the Americans again. 

In conclusion, while one must admit that the globalized economy had brought about great benefits to the US economy by opening up new markets for US exports, the overseas competition faced by the American companies and workers may not be unfair. In view of the cheap labour argument, the fact that in developing countries, labour is in abundant and thus these countries will have a comparative advantage in producing labour intensive goods, which is why imports from these countries are cheaper. Therefore, this renders protectionism unjustified as protecting these industries would be to produce a good that it has a comparative disadvantage in. Therefore, this comprises the consumption levels of the country, and gradually greater allocative inefficiency as domestic firms become even more productively inefficient because they have less need to improve operating efficiencies. Hence, protectionism may not be justified in the USA.

JC Economics Essays - H1, H2, H3 Economics essays - tutor's comments: This economics essay on globalisation, international trade, and the US economy is quite interesting, well written, crafted under timed conditions, and seems to address the economics question posed rather well to a large extent. There are some developed economic theories and the appropriate essay techniques, such as signposting, are used. The answer is rather clear and generally well developed, and could quite possibly gain a rather good mark from the examiners. The question is: how can this economics essay be made better? The overall quality of the essay answer could be much higher, but the question is - how can that be achieved under examination conditions, when time is scarce? What should have been done, and what should have been done better? Also, what other economic theories should have been brought in to make the answer more complete? Think about how you could write this essay better, and sharpen it further, and stretch the grade with models, theories, and examples. Perhaps this economics paper could have used more examples and empirical data to show good Economics knowledge and materials. 

Without the important international institution of the WTO (World Trade Organisation), the extent of globalisation that we see all around us would have been very much different than from what it is today. Discuss.

What is the World Trade Organisation (WTO)? The WTO is an international organization dealing with globalization and rules on trade between nations. Its main economic function is to ensure that trade flows as smoothly, predictably and freely as possible. What does economic globalization mean, in the first case? Globalization refers to the increasing integration and interdependence of the world’s economies arising from not only increasing trade but also from greater mobility of factors of economic production like capital, labour and enterprise. The WTO is an international organization that aims to facilitate global trade and to promote investment liberalization. One view is that without the aid of the WTO, international trade will be more distant and unlikely. Although there are other economic causes of globalization, the WTO plays a very important role to promote globalization. This economics paper discusses the WTO and how it has impacted the spread and extent of globalization. 

First, what does the WTO do? The WTO is run collaboratively by its member countries and all major decisions are made collectively by the countries respective representative, either by ministers who usually meet at least once every two years or by their delegates who meet regularly in Geneva. The functions of WTO include administering WTO trade agreements, being an international forum for trade negotiations, handling international trade disputes, monitoring national trade policies, providing technical assistance and training to developing countries, and cooperating with other international organizations. An important fact of the WTO are the WTO agreements. These are industry or issue-specific agreements that are collectively decided by its member countries with the aim of reducing international trade barriers and limiting anti-competitive trade practices. From this perspective, globalization is well-promoted by the WTO through moving away from protectionism. This has resulted in the easing of artificial barriers to international trade and this has led to increases in factor mobility. There are great benefits generated from international trade among countries and success of those export-oriented economies like Singapore, Hong Kong, and South Korea is irrefutable evidence of the benefits of international trade in facilitating economic growth. More and more developing countries in the world have actively tried to open their economies to trade and foreign direct investment, thus setting the stage for globalization to take place. The WTO is a well-placed and well-positioned organization which can help these developing countries to join in free international trade and enjoy the benefits of globalization.

Although WTO aims to promote international free trade, which according to standard economic theory is mutually beneficial for the countries involved in international trade, studies on how successful the WTO has actually been in achieving these benefits for its member countries have shown mixed results. According to research, studies by the General Agreement on Tariffs and Trade (GATT, the forerunner and predecessor of WTO) and Organisation of Economic Cooperation and Development (OECD) both estimate a gain to the international world economy from the WTO as more than $200 billion annually once its agreements are fully in force and would raise global real incomes by about 1%. Some international trade economists even argue that these estimates are much too low, as they do not account for the dynamic effects of the agreements.

However, on the other hand, economic studies done by the World Bank (using 1997-1998 economic data) reported that effective tariffs faced by low-income groups are still much higher than those faced by high-income economic groups in that economic study. Those living on less than US$1 a day and those living on between US$1 and US$2 per day faced effective tariffs rate of well over 14% while those from higher income groups (higher than US$2 per day) faced tariffs at only just over 6% on average. This is a fairly strong criticism of WTO agreements because the economic outcome seems to have favoured the richer countries at the expense of the poorer ones. Therefore, the WTO is not always economically good. It may sometimes benefit the developed and richer countries more which might cause certain countries to refuse to join WTO. Without WTO, those developing countries might cooperate more actively with other countries to promote economic growth. 

The other main reason explaining the trend towards globalization is that advances in technology has resulted in significant improvements in international transportation and international telecommunications, thus enabling goods and factors of economic production to flow more easily across international boundaries.

In the area of international transportation, the proliferation of international commercial air travel arising from improving aircraft technology has enabled people to fly more cheaply and to move to places at a moment's notice. This has made it easier and cheaper for international business travel and also for people to relocate to work in other countries. Foreign direct investment is thus facilitated because businesses find it increasingly easier to break their supply chain up to locate different parts of their operations in different countries. For example, instead having all the stages of production being located in one country, a firm can now station its headquarters and research and development operations in a developed country where capital, technology and skills are easily available, but locate its manufacturing and assembly facilities in a developing country where land and labour are cheaper.

Another major development in international transportation is the development of container shipping, which has greatly increased the efficiency in which goods and raw materials can be transported. Compared to non-container shipping, where goods have to be individually loaded and unloaded from a ship’s cargo holding area, containers (with the goods already stored in them) can easily stacked and moved from ship to ship or from a ship to container trucks using large container cranes. Containers can also be individually refrigerated, which significantly increase the ease in which perishable products can be shipped. 

In the area of international telecommunications, the greatest economic impact undoubtedly came from the development of the Internet, which has enabled massive amounts of information transferred quickly, cheaply and securely over long distances internationally. New modes of international communication such as email and video-conferencing have allowed businesses to effectively coordinate their operations across different countries. This has enabled international firms to break their economic supply chain into parts and locate different parts of their operations in different countries, hence facilitating the flow of foreign direct investments between countries. 

Hence, it can be argued that globalization is the inevitable outcome of the advance in technology, especially in improvements in transportation and telecommunications, rather than due to the WTO's efforts per se. International integration and interdependence among different countries are more and more crucial to countries’ economic growth and development in this world today. Without the aid of WTO, economic globalization will still be promoted by world economies themselves. However, WTO provides a great forum for countries to build economic and trade relationships with more and more countries. Maybe, just perhaps, the pace of liberalization via WTO is very slow because consensus is difficult with so many countries involved. Regional trade groupings were thus formed as an alternative way to integrate markets. Although forming bilateral free trade agreement and the formation of a trade bloc can be seen as being second best compared to global multilateral of free trade, members can at least enjoy ‘freer’ trade given that complete global free trade seems distant and unlikely. Hence, without the WTO, the extent of globalisation will still be promoted as people expected. There may be no major difference when globalization is without WTO, but multilateral at free trade may be reduced as a result.

JC Economics Essays - 'H2, H3 standards for an economics essay' - tutor's comments: Clear, interesting, and well-written, this economics paper will achieve a very high grade for the range of ideas, arguments, and examples presented on the institution of the WTO. Logical, reasonable, and well targeted to answering the requirements of the economics question, and with very solid, good background knowledge of the WTO and relevant and economic theories. Empirical economic data is present, to a relevant and large extent, to buttress arguments, advance and develop the paragraphs presented, and thus overall this is an excellent Economics paper.