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Discuss appropriate policy measures that the Singapore government may undertake to increase the net benefits of globalization

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Introduction

Discuss appropriate policy measures that the Singapore government may undertake to increase the net benefits of globalization To increase the net benefits of globalization, the negative impacts of globalization have to be mitigated and the positive impacts of globalization have to be enhanced at the same time. While Singapore may be handicapped by its small market size and lack of natural resources, it seems that these drawbacks could be less of a problem as the world economy becomes more globalised. However, it does not seem to be the case. Since Singapore government consistently restructures the economy to cope with the challenges of globalization, it hence resulted in structural unemployment. A remedy for structural unemployment is to use supply-side policy which is to provide education, retraining facilities and assistance to move the labour from depressed to expanding industries. This helps to raise the productivity of labour and hence raises the productive capacity. With a more educated workforce, the quality of labour could be raise too. However, the re-skilling and changing mindset of labour require increased government expenditure, therefore incurring opportunity cost. Firms may also reluctant to send workers for training if there were no subsidies or any financial support. There may be insufficient appropriate training facilities due to space constraint. There is a tendency for import expenditure to rise with the availability of cheap imports and increased variety due to globalisation. ...read more.

Middle

One of such ways is to use devaluation which is the deliberate lowering of the exchange rate of the home currency in terms of other countries' currencies. Suppose Singapore suffers a balance of payment deficit because of globalization and hence devalues her currency from US$1=S$2 to US$1=S$4, Singapore exports to US in terms of US$ are now cheaper while her imports from US in terms of S$ are more expensive. Exports will be encouraged and this leads to an increase in export revenue. Meanwhile, imports will be discouraged, which leads to a fall in import expenditure. Thus balance of payment equilibrium may be restored. However, Singapore may face retaliation from other countries. When Singapore devalues its currency, other countries' exports will fall and their imports will rise. They may retaliate by implementing various protectionist measures such as placing tariffs on imports and may even counter-devalue their currency. Therefore, to counter balance of payment deficit, it would be wiser to use long term measures through improving the supply side of the economy. Business need to be more competitive in domestic and overseas markets by reducing costs. Investments in new growth sectors or in industries with large exporting potential should be encouraged and research and development promoted to increase productivity as this will reduce the productivity gap with other countries. ...read more.

Conclusion

Therefore, there is trade creation. However, with FTAs, local firms, especially the small and medium enterprises will now have to face greater competition from foreign firms and may be forced out of the industry, resulting in unemployment. Strong competition may also deter potential local investment from taking place, leading to market domination by foreign firms.Trade diversion may occur too whereby trading activities move away from the pattern of comparative advantage due to distortion created by FTAs, resulting in inefficient allocation of resources. There has always been a sharing of goods, services, knowledge and cultures between people and countries, but in recent years improved technologies and a reduction of barriers means the speed of exchange is much faster. Globalisation provides opportunities and challenges, benefits and costs. Bigger markets can mean bigger profits which leads to greater wealth for investing in development and reducing poverty in many countries. Weak domestic policies, institutions and infrastructure and trade barriers can restrict a country's ability to take advantages of the changes. Singapore should make decisions and policies that position them well to maximize the benefits and minimize the challenges presented by globalization. Singapore must strive to be more competitive and be ready with appropriate government policies to take advantage of the situation, and to minimize the costs through attempts to foster greater economic integration with other countries so as to fully benefit from globalization. ...read more.

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