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

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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. This worsens the balance of trade, incurring a balance of payments deficit whereby international payments exceed international receipts excluding changes in official financing. A current account deficit is a net leakage from circular flow of income and has a negative effect aggregate demand and short term economic growth. To correct a balance of payments deficit for a short term, both expenditure-reducing policies and expenditure-switching policies could be used.

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Expenditure-reducing policies involve the reducing of level of expenditure on imports. This can be done using exchange rate policy whereby government depreciates Singapore currency which would make imports more expensive when converted to Singapore currency. Foreign imports are now more expensive in the eyes of Singaporeans due to its weaker currency. On the other hand, with a weaker exchange rate, there would be a surge in the world’s demand for Singapore’s export as Singapore’s export is now relative cheaper in the eyes of the world. Singaporeans may substitute local goods for foreign goods due to the higher import prices. ...

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