R A F F L E S IN S T IT U T IO N

Y E A R 6 H 2 E C O N O M IC S 2 0 1 7

ı
N TER N A Tı
O N A L E C O N O M I

G LO B A Lı
S A Tı
O N

1 G lo b a ıis a t io n
1 1 T he m e a n in g o f
g ı
o b a lis a tio n
. .

2 .
T re n d t o w a r d s G ıo b a lis a t io n
2 1 . . C a u s e s o f g lo b a lis a tio n
2 2 P re fe re n ü a ıT ra d in
g A m n g e m e n ts
. .

3 . E Ħe c ts o f G ı
o b a ıis a t io n
3 1 .
B e n e fits a n d c o s ts o f f re e tra d e

3 2 B e n e fits a n d C o s ts o f F o re i n D ire c t ı n v e s tm e n t flo w s ( F D ls )

. .

g
3 .2 1 B e n e fits o f F D ıs to th e re c ip ie n t c o u n try
. .

3 .2 2 c o s ts o f F D ıs to th e r e c i p i e n t o u n t r y
. .

3 . 2 3 . . B e n e fits o f F D ls to th e s o u rc e c o u n tr
y
3 . 2 4 o s ts o f F D ı
.
s to th e s o u rc e c «»u n tr
.
C
y
3 3 B e n e fits a n d c o s ts o f i n t e r n a t i o n a l m o b ilit o f fa c to rs o f ro d u c t io n
( la b o u r )
. .

y p
3 .3 1 B e n e fits o f ıa b o u r m o b iıit to th e re c i ie n t c o u n tr
. .

y p y
3 . 3 2 . . C o s ts o f la b o u r m o b ilit y to th e r e c i ie n t c o u n tr
p y
3 . 3 3 . .
B e n e fits o f ıa b o u r m o b ilit y to th e s o u rc e c o u n tr y
3 . 3 4 . .
Co s ts o f ı
a b o u r m o b ility to th e s o u rc e c o u n tr y
3 . 3 5 . . Be n e fits o f ı
a b o u r m o b iı
it y to th e w o rı
d e c «»n o m y
3 4 .
G ı
o ba lis a tio n in th e S in a o re c o n te x t
g p
3 . 4 1 . .
B e n e fits o f G lo b a lis a tio n to S in g a p o re
3 . 4 2 . .
C o s ts o f G ı
o b a lis a tio n to S in g a p o re
3 , 4 3 . . F u tu r e C h a lle n g e s fo r S in g a p o re

4 . C o n c ıu s lo n

O b je c t iv e s
A t th e e n d o f th e le c tu re s , s t u de n ts s h o u ld b e
・ a b le to e x
p
ıa i n th e c a u s e s a n d tr e n d to w a rd s
g
lo b a ıis a t io n
* a w a re o f th e d iffe re n t fo rm s o f e c o n o m ic a n d tra d e a g re e m e n ts b e tw e e n c o u n trie s
p e r a ü o n ,

e g F re e T ra d e A g re e m e n ts ( Ħ A s ) H o w e v e r, n o n e ( fo r d e ta iı
.
e d e d k n o w le d g e .
)
* a b le to e x p la in a n d e v a ı
u a te th e im
p a c t o f g lo b a lis a ü o n o n th e m a c rm c o n o m a s w e ll a s th e
y
im p a c t a t th e m i c r o n o m i c ı
e v e l o n h o u s e h o ld s a n d firm s ı
. n p a it iç u ı
a r, e v a lu a üo n o n e q u ity
is s u e s a s s o c ia te d w ith th e in te m a tio n a ım o v e m e n t o f ı
a b o u r a n d th e re ı
a t iv e e a rn in g p o w e r o f
th e a ffe c te d w o r k e r s is n e e d e d .

a b l e to ex p ai n h o w ec o n o m i c ag t s
l e n l i ke th e p
r
od u c e r s an d g
o v e r n m e n t s ma y
r
e s w
d
to
m itig a te th e n e g a tiv e im p a đ o f g lo b a lis a tio n .

A pp e n d ix
1 . 0 u ts o u rc in g a n d o fıs h o rin g .

2 . International In s titu tio n s , r e

g
io n a l in it i a t iv e s a n d t h e W T O

3 ly s is o f s h o rt te rm s ta tic h p a c t o f P re ı
e re n tia l T ra d in g A g re e m e n ts
( T ra d e C re a tio n &
. A n a

T ra d e D iv e rs io n )
4 B
'

. e n e fits o f F T A s in S in g a p o re
5 . M i c h fro m T h e E c o n o m is t o rrs h o rin g h a s b ro u h t h u e e c o n o m ic b e n e
g fits
g , b u t a t a h e a v y p o ıi t i c a ı
p
r i c e .

6 . A r t i c b fro m S T M a k in g th e m o s t o f g ı ob a ıis a ü o n c o m p u ı
s o r y m a d in g ) .
(
R e f e r e
A ppı
' ・ o
e ya ı
d , F ie ıd & C o b b
, ın t e m a t io n a ı E c o n o m ic s 5 E d 2 0 0 6 M c G r a w H il l
, , .

10
'
C
・
a rb a u g h R ın le t r ıa t iio n e l E c o n o m ic s E d itio n , W e s l e m T h o m s o n
' '
H an k L im , S i n
g
a
p
o r e s R e
g
io n a ı ın t e
g
r a t io n a n d G lo b a ıi z a ıi o n ın i t ia t iv e s
'

4
K oh , L M I, H u i , R a o . C h n
& Singapolre E c o n o m y in th e 2 1 c e n t u ry ls s u e s a n d s tra t e g iie s
'
M c G r a w H i ıl
'
J S ı
om a n i ť E d itio n , P r e n b o e H a ıl
'
"
M a n k iw . G N
.
Ħ i n c
ip le s o f E c o ln o m ic ť 4 E d it io n , S o u t h
-
We s te r n T h o m so n
'

P u g e tT h o m a s Ą I n t e m a
i
t i o n a l
・

1 3
・

E d iü o n
. M c r a w i l l
g
'
P R K ru g m a n & M O b s tlie ld I n t e r n a t i o n a l ic s T h e o ,r y
0
a n d
Ad d i s o w e s ıe y
. E c o n o m P o lic
v 3 E d it io n , p e a r s o n
' '

Sm *h ,
P e t e r E c o n o m ic s , H o d d e r E d u c a t i o n
 Ye a r 6 H 2 é c o n o m ie s L e c tu re N o te s 2 0 1 7

ł
n te m a tio n a l E c o n o m ic s G lo b a lis a tio n

O EC D H a n d b o o k o n E c o n o m ic G lo b a lis a t io n In d ic a to rs , O E C D 2 0 0 5

W e b s it e s
w w w ġ a g s ta t g o v . § g . w w w . m
m
o v s
g .
w w w
jw q lÆ o v m w w w . m rq . n
t
p
: / / w w w f t a . 9 o v . s o /

1 1 . . T he m e a n in g o f g ıo b a ıis a t io n

G ł e c o n o m ic o f c o u n t r ie s w o r ld w id e
o b a lis a tio n ca n b e d e fin e d a s fn e g r o w in g i n t e r e p e n d e n c q

th ro u g h in c r e a s in g v o ıu m e a n d v a r ie t y o f c ro s s -
b o r d e r t r a n s a c t io n s , \i
n
g
o o d s a n d s e r v ic e s , in

fı
o w s o f c a p it a ı
, in s
p
r e a d o f t e c h n o ıo
g y
a s w e lı a s in ıa b o u r m i
g
r a t io n .

G lo v e s a m o n g o th e r s
b a lis a tio n in v o ı ,

a n in c r e a s e in in te r n a tio n a l tra d e j n th e w o rld e c o n o m y

a n in c re a s e in in te m a tio n a ıflo w o f c a p ita l in c lu d in g fo re ig n d ire c t in v e s tm e n t

a n in c re a s e in in te r n a tio n a l o u ts o u rc in g
'
a n d o ff s h o ń n
g
\ b
y
m u łt i n a t io n a l c o r
p
o ra t io n s
(M N C s )
a n in c re a s e in i n t e r n a t i o n a ï m ig r a tio n o f ı
a b o

ı
n th is s e c tio n , t h e t r e n d to w o b a lis a t io n a n d
a rd s g ı its im p a c t o n tra d e (o f g o o d s & s e rv ic e s ) , c a
p ita l flo w s

a n d in te m a b o u r w iı
a tio n a ım o v e m e n t o f ı ıb e e x a m in e d . In th e c o u rs e o f e xa m in in g th e s e im p a c ts ( b o th

a t th e m a c ro a n d m ic ro le v e ls ) , e u it is s u e s w i ıl b e h i h ıi
g
h t e d ,
e s
p e c ia ıly th a t concerning th e
q y g

international a b o u r a n d its r e la t iv e
m o ve m e n t o f ı im p a c t o n d iffe re n t g r
o u p s o f w o r k e rs .

G lo b a lis a tio n is d e e p ı
y c o n t ro v e rs ia ı . p is a tio n
ro p o n e n ts o f g lo b a ı a rg u e t h a t it a ı
lo w s p o o r c o u n trie s a n d
th e ir c itiz e n s to d e v e ı
o p e c o n o m ic a ı
ıy a n d ra is e t h e ir s ta n d a rd s o f liv in g , w h i le o
p p
o n e n t s o f
g lo b a lis a tio n

c ı
a im th a t th e c re a tio n o f a n u n fe tte re d in te r n a tio n a l f re e m a rk e t h a s b e n e fite d m tin a tio n a l c o r p o ra tio n s
u ı

in th e W e s t e r n w o rld a t th e e x p e n se o f lo c a l e n te r p ris e s ,
ıo c a ı c u lt u r e s , a n d co m m o n p e o p le .

G lo b a ı
is a tio n h as be e n b ı
a m e d fo r a w id e ra n g e o f ills ,
f r o m u n e m
p
ıo
y
m e n t in d e v e ıo
p
e d c o u n t r ie s t o

e x p lo ita tio n o f w o rk e r s in p o o r c o u n tr ie s a n d e n v iro n m e n ta l d e s t ru c tio n . R e s is ta n c e to g lo b a lis a t io n h a s

th e b o th a t a s o c ia l le v e l a n d a t a g o v e rn m e n ta l le v e ı a s p e o p le a n d
re fo re ta k e n s h a p e p o p u la r

governmen ts tr y to m a n a g e th e f lo w o f c a p ita ı
,
la b o u r
, go od s ,
a n d id e a s th a t c o n s titu te th e c u rre n t w a v e

g lo b a lis a tio n . T he m a in c h a lı
e n g e is fo r c o u n trie s to e ffe c tiv e ly m a x im iz e th e p o te n tia ı b e n e f its a nd

m in im e u n in te n d e d a d v e rs e c o n s e q u e n c e s th ro u g h g o v e r n m e n t p o lic ie s
iz e th e in e v ita b ı .

PR e fe r to A p p e n d ix 1 o n o u ts o u rc in g a n d o ffs h o rin g .
J

2 . C A U S E S A N D T R E N D T O W A R D S G LO B A Lı
SATı
O N

2 1 . . C a u s e s o f g ıo b a ıis a t io n

du e
G ı o b a ıis a ü o n is m a in ıy b ro u g h t a b o t
u b y th e Ť e d u c Įtiò n in c o s ts ıb f tr a n s p o r ta tio n a n d c o m m u n ic a tio
ņ $
to a d v a n c e m e n t in t e c h n o lo g y ) a n d t h e i b re a k ìn g d o w n o f a r tific ia l b a rr ie rs ￠to th e f ı o w o f g o o d s , s e l i ric e s ,

c a p ita l le n t ,
t a ,
t e c h n o lo
g y
a n d k n o w le d
g
e a c r o s s b o r d e r s
(d u e to g o v e r n m e n t p o ı
ic ie s )

a . Tec og y\ a d va n c e m e n t
h noı h a s b e e n a p rin c ip a l d ńve r o f g lo b a liz a tio n a n d h a s d ra m a tic a ı
ly

tr a n s fo rm e d e co n o m ic ı
ife .

:
lo h a v e iv e n a ıi e c o n o m ic a e n ts c o n s u m e r s in v e s t o r s a n d b u s in e s s e s
In lo n ? Ta » o n te c lm o g , , ,
g § g

ua bı
va ı e new s fo r id e n ü fy in g
to o ı a n d p u rs u in g e c «»n o m ic o p p o rtu n it ie s ,
in u d in g
c ı fa s te r a n d m o re

in fo rm e d a n a ı
y s is o f e c o n o m ic tre n d s a ro u n d th e w o rld ,
e a s
y trq n s fe rs o f a s s e ts ,
a n d c o l la b o r a t io n

w ith fa r -
fı
u n g p a rtn e r s . C o m m u n ic a tio n s te c h n o lo g y h a s d e v e lo p e d ra p id ly w ith th e g ro w th o f th e

w o rld w id e w e b a n d e
-
c o m m e r c e
,
e n a bı
in g firm s to c o m p e te m o re e a s iı
y in g ı
o b a l m a rk e ts .

'
Im p ro v e m e n ts in h a v e e n a b ıe d f ir m s to fr a
g
m e n t th e ir
p
ro d u c t io n
p
r o c e s s to ta k e

Pn p le
・
a d v a n ta g e o f v a ry in
g
c o s t c o n d it io n s d iffe r e n t p a r ts o f th e w o rı
d ,
f o r e x a m
,
t o s it e la b o u p

in te n s iv e p a rts o f a p ro d u c tio n p ro c e s s in a re a s w h e re a b o u r is re ı
ı y c h e a pe r
a tiv e ı .

Fo r e xa m p ı
e , A
p p le ,
t h e ı
p
h o n e
p ro d u c e r, is n o w a bı
e to f ra g m e n t th e p ro d u c tio n p ro c e s s in
va ńo us

p a rts o f th e w o rı
d , t h e n t r a n s
p
o ń t h e m a n
y d iffe re n t c o m p o n e n t p a rts fro m K o re a , J a
p
a n a n d T a iw a n

to C h in a w h e re t h e y a re a s s e m b le d in to th e fin a l p ro d u c t . A n d f ro m C h in a ,
lp h o n e s a re s u b s e q u e n tly

tra n s p o rte d to a ll o t h e r p a r ts o f th e w o rı
d ,
in c l u d in g U S A .

į h a h \ a \ t J» $ \S
ţ

t i n m iw
l= W W 2
R a N e s In s titu tio n

E c o n o m ic s D e p a rtm e n t
 イ
ー

Y e a r 6 H 2 t c å n o . Ic s L e c ,
e N o te s 2 0 1 7
In te m a lio n a f E " " c 5 . G lo b a fis a tio n

◆ . T he c u rr e n t w a v e o f g lo b a lis a t io n h a s a ls o b e e n d r iv e n b y i p o ï ic ie s l th a t h a v e o p e n e d e c o n o m ie s
do m e s tic a ll a n d in te r n a tio n a It
y y G o v e rn m e n ts ,
t h r o u
gh in te r n a tio n a l o r g a n is a t io n s s u c H a s th e
W o rld T ra d e O rg a n iz a tio n
(W io ) , h a v e n e
go t ia te d d ra m a tic r e d u c tio n s in b a r r ie rs to t ra d e a n d
c o m m e rc e a n d h a v e e s ta b tis h e d in te r n a tio n a l a g re e m e n ts to p ro m o te tra d e in g o o d s s e r v ic e s
in v
, a n d
,
e s tm e n t, ba s e d o n c o m M
p a r a tiv e a d v a n ta g e . a ny c o u n tr ie s h a v e a ls o s e t u p tra d e b lo c s a n d
m a d e t ra d e a rr a n
g e m e n ts a m o n g th e m s e lv e s to re d u c e tra d e b a r r ie r s \ a n d a llo w e a s e o f c a p ita l a n d
fo re ig n in v e s t m e n t f
lo w s .
(s e e b e lo w p re fe re n tia l T ra d in g A r e a s ) .

2 2 .
P r e f e r e n t ia ıT r a d in
g A re a s

Eco n o m ic in te ra tio n is o fte

g n a c h ie v e d b y fp ı
e fē iē ñ liā l tra d iriġ þ rra n g e m e n ts m a d e b e tw e e n c o u n trie s to
re d u c e o r e lim in a te tra
d e b a rrie rs b e tw e e n th e m p re fe re n tia l tra d in g a m n g e m e n ts ( s o m e tim e s k n o w n .

a s Ė co ifń iċ
p e r a t i ö n ı m a y ta k e d iffe re n t fo rm s w ith v a ry in g d e g re e o f re s tric tio n s fr e e tra d e a re a s -

(Ħ A s ), c u s t o m s u n i o n s (c u s ) a n d c o m m o n m a rk e ts (c M s ) ' " a ・'

r H *,
F r e e tra '
d e a re a s (F T I A fre tra
-

e -
d e a re a is w h e re m e m b e r c o u n tr ie s re d u c e o r re m o v e ta rifts
and q u o ta s b e tw e e n th e m s e lv e s , b u t r e t a in w h a te v e r re s tric tio n s e a c h m e m b e r c h o o s e s w ith
no n -
m e m be r c o u n trie s .

C u s to m s u n ı o n s ( C U s » A c u s to m s u n io n is lik e a fre e .
tr a d e a re a bu t in a d d itio n m e m b e rs
-
,
,

m u s t a d o p t c o m m o n e x te m a ıta ń « s a n d be r c o u n trie s
q u o ta s w ith n o n
-
m e m .

C o m m o n m a r k e ts (C M s )
-
A co m m o n m a rk e t is w h e re m e m b e r c o u n tr ie s o p e ra te a s a s in g ı
e I
m a rk e t . L ik e a c u s to m s u n io n ,
t h e r e a r e n o t a ń ffs a n d q u o ta s b e tw e e n m e m b e r c o u n trie s a n d
th e re a re c o m m o n e x te m a ıta ń ffs a n d But a c o m m
q u o ta s . o n m a rk e t g o e s fu r th e r th a n t h is . A
co m m o n m a ık e t in c ı
u d e s » e e c a p ita ıa n d la b o u r m o v e m e n tļ a n d
p o s s ib ı
y a d d itio n a ıfe a tu re s lik e
a c o m m o n s s te m o f ta x a tio n c u r r e n c
y
a n d ıa w s , y 1

T he w o r ld e c o n o m y is in p in g y fo lm n in to a s e rie s o f tra d e b lo c s , b a s e d u o n re io n a l ro u in s o f
C o u n trie s
q
, r p

e x a m p le s a re th e E u rá e a n U n io n \in E u ro e łh e N o rth A m e ric a n

n

p
R

g g j p g j
p p , F re e T ra d e A s s o c ia tio n
(N A Ħ Ą ) c o m p ris in g U S A , C a n a d a a n d M e x ic o , a n d t h e A S E A N c o m ris in m o re th a n 1 0 S o
p g u th E a s t
A s ia n c o u n tr ie s S u c h tra d e b lo c s a re e x a m le s o f fe fe re n tia l tra d in a m n e m e n
p p ts
.

g g .

efer to A p p e n d ix 2 fo r m o re in fo rm a tio n o n th e w r o a n d s o m e o th e r i n t e r n a t i o n a t
nsti tuti ons a n d
ıe g io n a l in itia tiv e s th a t h a v e c o n ltib u le ď to th e
g lo b a lk a lio n p r o c e s s ] .

3 . E F F E C T S O F G L O B A L IS A T ı
O N T
'

E ffe c ts o F g lo b a lis a tio n o n a n e c o n o m y c a n b e e x la in e d v ia th e im

p p a c t d u e t«i tra d e f ı
o w s , F D I f ıo w s a n d

la b o u r fıo w s T h e im p a c t c a n b e d is c u s s e d a t b o th th e m a c ro le v e l ( e n e c ts o n t h e
g o v e r n m e n t) a n d a t
.

th e m ic ro le v e ı( e ffe c ts o n firm s , h o u s e h o ıd s , d i Ħ e r e n t r k e rs
) a s w e ll a s im p a c t o n S O L ,
r o u s o f w o
g p

w h e re re le v a n t

3 1 . B e n e fı
ts a n d C o s t s o f F r e e t ra d e

T h e d y n a m ic b e n e fits ( a d v a n ta g e s ) a n d c o s ts ( d is a d v a n ta g e s ) a s s o c ia te d w ith in te m a tio n a ı tra d e (a t

th e m ic ro a n d m a c ro ı e v e l) h a s b e e n c o v e re d in th e p re v io u s to p ic ı
n te r n a tio n a ıT ra d e .
(p ı
e a s e re fe r to
th e ıe c tu re n o te s o n In te m a ü o n a l T ra d e ) .

P o r r e a d in g o n th e s h o r t te rm s ta tic e fï e c t o f tra d e
(tra d e c re a tio n a n d tra d e d iv e rs io n ) , p
ıe a s e r e fe r to

A pp e n d ix 3 H o w e ve r
q
. n o t e th a t t h is is n o t r e
, g u ir e d in t h e G C E A le v e ı H 2 M
s a b u .
y

ļ .

1 . D m u t ŁU m ￠ u \ w
3
k \ q v ï .

3 2 B e n e fı
ts a n d C o s ts o f F o r e i n D ir e c t ın v e s t m
R \ 3 w
'
.
g e n ts (F D ı
s ) ・
￠ + to \ o h ,

G ı
o b a liz a tio n h a s b ro u g h t a b o u t a n in c re a s e in in te r n a tio n a l f ı
o w o f c a p ita ı ı
n a n a rn o w
l in c ı
u d in g F D ı
s .

se n se F D ı r e fe rs to th e a c q u is itio n o r c o n s tr u c tio n o f n e w
p la n ts a n d e q u ip m e n t in a fo re ig n e c «»n o m
,

y .

o th e r th a n th a t o f th e in v e s to r . It m a y a ı
so in c ı
u d e th e m o v e m e n t o f c a ita l th a t in v o lv e s fo re i n i
p g

R a N e s In s titu tio n
3
E ◆ n o m ic s D e p a rtm e n t
 U -
巹
ıé e r 6 H 2 E c o n o m ic s L e c tu re N o te s 2 0 1 7

International E c o n o m ic s G ł
o b a ı
is a lio n

o w n e rsh i a n d c o n tro ıo f
p p ro d u c tio n fa c iı
it ie s T h is o c c u rs w h e n . th e p a re n t c o m p a n y o b ta in s s u ffic ie n t
s h a re s in a fo re i n c o m
g p a n y to a s s u m e v o tin g c o n tro l .

F D ıa c tiv itie s a re c a rrie d o u t b y m u ltin a tio n a l c o r p o ra tio n s (M N C s ), s o m e t im e s r e f e iT e d t o a s M N E s

(rin u ltin a tio n a l e n te r p r is e s ) , TN C s ( tra n s n a tio n a l c o r p o ra tio n s ) o r T N E s

( tr a n s n a tio n a l e n te r r is e s
be p )
ca u se th e y o p e ra te in m o re th a n o n e h o s t c o u n tr y T he se c o r p o ra tio n s
-
rn a y b e in a n y b u s in e s s
a c tiv itie s lik e m a n u fa c tu rin g ic e
g o p e ra tio n s a nd
-
m in in x
, , e t r a c t io n
,
b u s in e s s s e r v

e ve n re s e a rc h a n d
de ve ı
o p m e n t R & D
( Exa m p le s o f M N C s in c lu d e M its u b is h i a n d T o y o ta f ro m
) .
J a p a n a n d G e n e ra ıE le c tric
a n d E x x o n M o b il f ro m U S A .

T he c a s e fo r o p e n in
g m a rk e ts to F D ıin f lo w ( in to a re c ip ie n t c o u n tr y ) is a s c o m p e llin g a s it is fo r tra d e A .

m o re o p e n ie c o n o m
y is lik e ı
y to e n j o y a h ig h e r ra te o f p riv a te in v e s tm e n t , Iw h ic h is a m a o r d e te rm in a n t o f
j
e c o n o m ic g ro w th a n d o b c re a tio n Ŕ H o w e v e r t h e re is a ls o n e a tiv e im
j , g p a c t o f F D I in fı
o w s o n th e r e c i ie n t
p
c o u n tr
y a n d F D ıo u tï lo w s fr o m th e s o u rc e c o u n tr y .

3 2 1
. . B e n e f it s o f F D ı
s to th e R e c ip ie n t C o u n t r y

For M e re c ip ie n t c o u n trie s F D I is a c tiv e ly c o u rte d b e ca u se it g e n e ra te s e f fe c ts

, s u c h a s in c re a s e s in
in v e s tm e n ts a n d h e n ce A D in th e s h o rt r u n in in a c tu a l g ro w th l In
, r e s u lt
g th e lo n g e r ru n ,
it m a le a d to
y

Po te n ü a l g ro w th a s it a ls o g e n e ra te s s p illo v e rs s u c h a s b e ttp r te c h n o lo g y Ė n d im p ro v e d m a n a g e m e n t
s k ills . Fo r e g M NC s b rin g in fo r e ig n m a n a g e rs a n d to p e x e c u tiv e s to ru n th e s u b s id ia ry
,
in r e c ip ie n t
c o u n trie s a nd th e re le v a n t m a n a g e m e n t e x e rtis e is lik e l to h ic k ie to
p y lo c a l m a n a g e rs . T he re le v a n t
k n o w le d g e a n d s k ills a p p lie d to h o w g o o d s a re p ro d u c e d a re lik e ly to tr ic k le to lo c a l in d u s trie s to o .

F u rth e r fo re ig n firm s w ith m o re a d v a n c e d te c h n o lo

, a s m o r e
g y e n te r th e d o m e s tic in d u s tr ie s , it le a ds to
in c re a s p d c o m p e tit io n ia n d th e d o m e s tic ı
irm s w o u ld h a ve to in n o v a te ,a n d im p ro v e t h e ir p r o d u c t io n
P ro c e s s e s in o rd e r to s u rv iv e . T h is h a s th e
e ffe c t o f in c r e a s in g p ro d u c tiv ity a n d th u s r e d u c in th e u n it
g
c o s t o f p ro d u c tio n . T h u s F D ls c a n e n h a n c e b o th a c tu a l a n d p o te n tia l g ro w t h in a c o u n tr
y .

M a c ro b e n e fits

F D ıle a d s to a n im p ro v e m e n t in t h e c a p ita ıa n d fin a n c ia ıa c c o u n t o f B O P . ıf t h e r e is a d e f ic it o n

th e c u rr e n t a c c o u n t, he in flo w s o f F D ls in th e c a p ita l a n d fin a n c ia l a c c o u n t c a n h e ı

p to o ffs e t th e
t

d e fic it ıe a d in g to a s m a lı
e r o v e ra ll B O P d e fic it o r m o v in g c lo s e r th e B O P e q u iı
ib r iu m .

F D ıc a n a ı
s o s u p p ı
e m e n t p ń v a te in v e s tm e n t a n d le a d to in c re a s e in d e m a n d fo r \c a p it a ı g o o d s
a n d s e rv ic e s in th e e c o n o m y In t h e s h o rt ru n , t h i s w i ıl in c r e a s e A D fro m A D
o t o A D 1 a s s h o w n in
.

F ig u re 1 , ı e a d in g to in c re a s e in n a t io n a l in c o m e a n d a c tu a ıe c o n o m ic ro w th a s s e e n f ro m Y o t o
g
Y 1 ( th e a b o v e is
. e s p e c ia lı
y im p o r ta n t fo r d e v e lo p in g e c o n o m ie s w h ic h m a y s u ffe r fro m lo w
in v e s tm e n t le v e l d u e to ı
o w d o m e s t ic s a v in g s le v e ı
)
B y e s ta b lis h in g p ro d u c tio n fa c ilitie s in th e re c ip ie n t c o u n tr y , F D I c a n a ls o c r e a te
jo b
o p p o rtu 门面 e s T he . h irin g o f ı
o c a l w o rk e rs w iı
l h e n ce re d u c e u n e m p lo y m e n t s in c e Y 1 is n o w
c lo s e r to Y fo th a n Y o . M o re o v e r , by a d d in g to t h e to ta ıd e m a n d fo r lo c a ıw o rk e rs
,
t h is w iı
ıin tu m
ta is e w a g e s fo r a lıw o r k e r s in t h e h o s t c o u n tr y ,
a n d n o t
ju s t th o s e th e y e m p lo y .

In fıo w s o f F D Ia ı
so g e n e ra te s in c re a s e s in :c o rp o r a te ta x re v e n u e fo r t h e h o s t
g
o v e r n m e n t

G e n e ıp

Þ R e a ! N a tio n a ıO u t p u t

Yo Y 1 Y fo Y fl

F ig u re 1 E f fe c t s o f F D ıo n r e c ip ie n t c o u n t r ie s

R am es Iris titu tio n 4

Econom ic s D e p a rtm e n t
e w a r 6 H 2 b L e c iw e N u es 20 17
1. le m a t io n a l E c o n o m iw G lo b a lis a tio n

e
In th e lo n g ru n
・ ,

In c r e a s e in in v e s tm e n ts re s u lt in h i h e r le v e ls o f fix e d c a p ita l a c c u m u la tio n w h e n fo re i n firm s

g g
b u ild u p th e ir p ro d u c tio n fa c iliı
ie s M o re o v e r . T h e
y te n d to b rin g w ith th e m te c h n ic a l i l 1

・
.

m a n a g e ria l e x e rtis e a s w e ll a s n e w ie s w h ic h a re tra n s fe rre d to th e ı

p p ro d u c tio n te c h n o lo g o ca ı
w o rk fo rc e T h e s e re s u lt in a n im p ro v e m e n t o f th e q u a n tity a n d q u a lit y o f re s o u rc e s a n d th u s
.

・ e n h a n c in '

g th e r e c ip ie n t c o u n tr y s p ro d u c tiv e c a p a c ity ' " ig h e r p ro d u c tiv e c a p a c ity in c re a s e s th e

L R A S fro m A S n to A S in F i u re 1 h e n c e e n e r a t in g o t e n t ia l r o w t h
g
.
a s s h o w n t, p g , g

If th e iė )c p o rt
'
f o re ig n he re c ip ie n t c o u n try A re e x p e c te d to in c re a s e
・
firm is e x p o rt o rie n te d
-

,
t s .
,

le a d in g to im p ro v e m e n ts in th e B O T a nd h e n ce B O P .

・ M ic r o b e n e f it s
A s e x p la in e d a t th e s ta rt o f th is s e c tio n 3 . 2 1 .
,
fir m s in th e e c o n o m y b e n e f it » o m th e tra n s fe r o f
ī ñ a n a g e m e n t e x p e rtis e a s w e ll a s tra n s fe
・ in d u s t ry a ls o a s m o re fo re i n firm s w ith
.
r o l tė c h n o lo g y
m o re a d va nce d
d ue
te c h n o lo g y
to th e p re s e n c e
e n te r th e
o f fo re ig n

d o m e s tic
firm s
in d u s t rie s
in th e
it
g ,

le a d s to in c re a s e d c o m e titio ri a n d a » in n o v a te a n d im
e p j d o m e s t ic f irm s w o u ld h a v e to p ro v e t h e ir

P ro d u c tio n p r o c e s s e s in o rd e r to s u rv iv e T h is h a s th e e « e c t o f in c re a s in g p ro d u c tiv ity :a n d th u s re d u c in g

.

th e u n it c o s t o f p ro d u c tio n a n d L L ・h . . I n « s \ . h , t \ q , m
p o s s ib ly le a d to h ig h e r p ro fits fo r th e s e firm s
\.. .
U

・ ' -
þ« . m ￠ \ " " \ P ・ Ħ " " L . h

W O r k e be n e fit b e c a u s e o f th e iį b o n firm s s e ttin g

j p p o rh m itie s th a t c o m e w ith th e fo re ig u p p ro d u c tio n

・ in th e e c o n o m y -

3 2 2 C o s ts o f F D ls t o
o
. .
th e R e c i p ie n t C o u n t r y

T he fo llo w in g a re s o m e
p o s s ib le d is a d v a n ta g e s to th e re c ip ie n t c o u n try » o m F D ı

・ B\
M ic r o e c o n o m ic c o s ts
'
ţ m.bţ +'" . qc m N t &

・ R ė đlg m c o m p ę !i!ig n a m o n q firm s

in d u s try S m a ll -
F o re ig n firm s m a y s tiĦe e ffo rts to
d iu m e n te r p ris e s (S M E s ): m ș y h a v e d iffic iilty c o m p e ū n g
-
m e
'
d e v e lo p
a g a in s t la r g e
h o m e g ro w n

M N C s .

T h e re is lik e lih o o d o f a n in c r e a s e in m o n o p o ly p o w e ıf w it h in th e e c o n o m
・ y , e s e c ia ll w h e n a
p y

la rg e fo re ig n firm u n d e rc u ts a c o m p e titiv e lo c a l in d u s !w b e c a u s e o f s o m e p a rtic u la r a d v a n ta g e

(s u c H a s b e u e ť t ė ċ h ń o lò g y o r IE O S ) a n d d ń v e o u t d o m e s tic tirm s fr o m th a t in d u s try .

・
E r m ėñt á ï r ā d a t i ó n M a n y d e v e lo p e d e c o n o m ie s h a v e s tń n g e n t p ro d u c tio n re
q u ire m e n ts

・ w h ic h re q u ire firm s to
dev e lo p in g e c o n o m ie s
u se
h a v e
c le a n e r b u t m

r e la tiv e ly
o re e x p e n s iv e

le ś Ė ś li iń g ė n t ė n v iro n m
p r o d u c t io n m

e n ta l r e g L ila ı
e th o d s

io Fi o f th e
. O n th e o th e r h a n d
a c tiv itie s o f
,

tirm s a nd th is e n c o u ra g e s m a ny M N C s r» lo c a te M ė ir p o llu tiv e ĺ n d u s trie ş to d e v e lo p in g

・
蠶瞥 ，X ぱ 思g 凯 蠶 賀
・
W id e m į m e o a F :, .
In v e s tm e n t o f fo re i
g
n t ir m
縈 s w it h n e w te
戮 慧慧
c h n o lo
g
ie s w ill u s u a tı
y
b e n e f it
ヒ。

・ w o rk e rs
in d u s trie s
in
e xp a n d
th e in d u s tr ia lis e d
w ith m o re
s e c to rs
in fı
o w o f F D ïs
(e g
,
m a n u fa c tu rin g
w o r ke rs in su cH
s e c to r )
in d u s trie s
o f a n
a re
e co n o m y
lik e ly to
- A
te a m
s th e s e
n ew
s k ills jo y b e tte r j o b p ro s p e c ts a s w e ll a s w a g e in c re a s e s H o w e v e r, ic s e c to rs
・
e n . s o m e d o m e s t
, ,
'

lik e th e a g ric u ltu ra l s e c to r , m a

y re m a in śı
a g h a n t :T h e re fo re , s m a ı
l po c k e ts o f w e a lth m a y re s u lt
ūom s e c to rs in v o lv in g F D ls b u t w o rk e r s in th e d o m e s tic s e c to rs re m a in po o r . T h is le a d s to

・ u n e q u a l w a g e g ro w th h e n c e ra is in g in c o m e d is p a ritie s w ith in th e c o u n tr
y -

・
'
T o m it ig a t e th e a bove n e g a tiv e e n e c ts o f F D I in lla w , go v ts m ay iñ ĉ rā ā ś è a t ic i n
re g u ı in th e re le v a n t

s e a o rs . Fo r e x a m p le , t he y c o u ld s e t u p W a tc h d o g s o n a n ti c o m p e titiv e
-

b e h a v io f o f firm s o r im p le m e n t
'

s trin g e n t a n ti tru s t la w s a n d to im p o s e ś tiic te r s ta n d a rd s o n p ro d u c tio n to re d u c e

'
m o re
・
n e g a tiv e
-

e x te m a litie s o rıs o c ie ty S u p p ly s id e p o lic ie s lik e g ra n ts , t o e n c o u r a g e u s e o f b e t t e r t e c h n o l o g y m a y a ls o

.

b e n e e d e d to h e lp lo c a l firm s m e e t th e c o m p e tiü o n fro m fo re ig n ıirm s P o lic ie s to im p ro v e t h d u c a tig ı ]

・
. . E

le v e l a n d s k ills le v e t o f th e w o rk e rs a s w e ll a s s o c ia l p ro g ra m m e s to ŕ ė i s ü i b u t ą in c o m e is n p r y to ,n s s a r

re d u c e th e w id e n in g in c o m e g a p a n d to e n s u re g re a te r s ä c ia ıs ta b ility þ ( P le a s e r e f e r to e a r lie r c h a p te r s

・ o n re le v a n t p o lic ie s fo r d e ta ils .
)

M a c r o e c o n o m ic c o s ts
・ '

D e ċ re a ș u o đ m m Į w e ș ļ m ę D ţ łF o re ig n firm s m a
, ą y o n ly p a rtia lly fin a n c e th e ir in v e s tm e n ts fr o m
th e ir p a re n t c o m p a n ie s in th e s o u rc e c o u n tr ie s a n d re l o n b o rr o w in
y g th e re s t f ro m th e r e c ip ie n t

R a m e s In s titu ijio n 5
E c o n o m i& D e p a rı
m e n t
 一 国 四 ■

tdaıwı w e ıq m tı
w ,
t .
Į . "
ľ \c Ļ - N * ı・
m t a
ye' X
'

o b a h s a tio n
G ı
・
'
c o u n try
p ita
'
s l m a rk e L T h is d fn re s y p ı
in te re s t ra ie s , c a u s in g
ałowding
c a
o uï e n ect o n o ca ı
ı
in v e ,

s tm e n ts , r e d u c in
g th e g ro w th o f A D a n d lo w e r a c tu a l g ro w th in th e re c i ie
n t c o u n tr
p y .

t t m D I Ș . le a d in g to re d u c e d e x p o rt c o m p e titiv e n e s s T he in f lo w o f c a p ita l le a d s a n
.

a p p re c ia tio n to
o f th e c u rre n c y , m a k in im r ts r e la t iv e l
g p o c h e a
p e r a n d
e
x p
e n s i ve . h i s'
r

u c e s t he p r ice c o m p e t itive n e s s
y

ł
e x p o rts r e la t iv e l
y m o re
ı
of t he
r ec i pi en t c o u n t ry
T
e d

s go o d s an d t hu s
m a k e s it 1o re d if fic u lt fo r th e m to e x p o rt a n d g ro w
T its e c o n o m
y .

bjrju in th e b a la n c e o f p a y m e n ts a n d e x c h a n e ra te s
q A c t iv itie s re la te d to F D ls ı
ik e c a p iı
a l
in flo w s im p o r t o f in p u ts
,

'
, r e
pa
tria tio n o f p ro fits b a c k to s o u rc e c o u n tr m a
y y c a u s e in s ta b ility in th e
re c ip ie n t c o u n tr E x c h a n g e ra te a n d m a k e it d if fic u lt fo r lo n
g te rm p la n n in g
y s
.
-

F
.

u n d s o u tflo wis e s p e c ia lly h e i h te n e d d u rin

g g fin a n c ia ıc r is e s la s M N C s m a y m o v e fu n d s ra
o u t d u rin p id ly
g p e rio d s o f u n c e rta in ty w h ic h m a y m a k e it e v e n m o re d iffic u lt fo r
g o v e r n m e n t s to
s ta b iliz e th e e c o n o m ie s .

T o m it ig a t e th e a bo ve c o s ts , go ve rn me nt s m a y n e e d to e x e rc is e s o m e c o n tro l o v e r th e re le v a
nt m a c r
e c o n o m ic v a ria b le s lik e th e e x
c h a n g e ra te ò r s o m e f D rm o f ū n tro ï o v e r c a p ita l n
w d u ńn g c ń s is s o a s
to e n s u re g re a te r m a c ro s ta b ilit】 O th e r p o s s ib le
m a x im u m
/ ・
m e a s u re s m a y b e in th e fo rm
ofstcaolT on a
p e rc e n ta g e o f p ro fits th a t c a n b e re p a tria te d to h o m e ı
th e c o u n tr y - n a d d itio n to m itig a te th e
im p a c t o f F D ls o n d o m e s tic in v e s tm e n ts th e o u t u t o f fo re i n
,

,
p g firm s m a y b e s u b je c t to U o m e s tic c o n te n t
M u ire m e n ts o n in u t
p $ , o r fo re ig n firm s m a y n e e d to tie u p w ith lo c a l firm s fo r a n
,

y b u s in e s s v e n tu re s o r
m a y b e b a n n e d a lto e th e r » o m
c e rta in g k e y in d u s trie s .

Ĥ b\L ţ m d & . į .\
°Ľ3 q t b u °: °į ・ 15 ų ı ıo " " i ・Ļ ￡ ı

M a c r o ￠ c o n o m ic ' ' \
Ę
"

b e n e f its
.
.

ın v e s tm e n t a b ro a d s tim u la te s x p o r t s o f
m a c h in e ry a nd o th e r c a p ita l g o o d s - T h is is be ca u se w h e n
s u b s id ia rie s a re se t u p o v e rs e a s , c a
p
it a l e
qu ip m e n t a n d o th e r m a te ria l in p u ts n e e d e d to ru n th e
s u b s id ia ry a re lik e ly to co m e » o m th e s o u rc e co u nı
ry . T h is s tim u la te s e x p o rts fo r th e s o u rc e c o u n tr y ,
w h ic h th e n tra n s la te s in to in c re a s e s in B D ä n d h e nce in c re a s e s in e m
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i

M o re o v e r o th e r in d u s trie s in th e s o u rc e c o u n tr y m a
y lin d th e ir e x p o rts ris in g o v e r tim e . T h is is b e c a u s e
w h e n th e re c ip ie n t c o u n trie s o f th e F D ls d e v e lo p a nd e n jo y e co n o m ic g ro w th w ith h ig h e r le v e ls o f
e m p lo y m e n t a n d in c o m e s , t h is w ill e n c o u ra g e p u rc h a s e s o f m o re g o o d s a n d s e rv ic e s in c lu d in g
,
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fr o m th e s o u rc e c o u n trie s ig e n e ra tin g
,

, h ig h e r e x p o rt s a le s fo r o th e r in d u s u ie s in th e s o u rc e c o u n
trie s .

H e in c e th is in c re a s e s e x p o rts le a d in g to a c tu a ıg ro w th a n d ris e in e m
p lo y m e n t in th e s o u rc e c o u n trie s .

In th e lo n g -
ru n , FD I w ill g e n e ra te a ę h i r now o f in c o m q sucH a s in te re s t a n d d iv id e n d s b a c k to th e
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W n e n a lirm m o v e s its p ro d u c tio n it m liò ś ts o f p ro d u c tio n ,
-

fa c ilitie s to o th e r c o u n tr ie s , a y d o so bec a u se
lik e la b o u r c o s ts a re re ıa tiv e ıy ıo w
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e r .
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p p le s m a n u fa c tu ńng
a n d a s s e m b ly o f its p o u la r
p
p ro d u c ts ıik e ip h o n e s a n d ip a d s is d o n e in S h e n z h e n , C h in a , w h e re th e la b o u r c o s ts a re re la tiv e ly lo w e r .

In a d d itio n to lo w e r ıa b o u r c o s ts , t h e re m a
y b e a d d itio n a l c o s t s a v in g s lik e tra n s p o tio n c o s ts fo r th e
firm if th e p ro d u c tio n b a s e is n o w c lo s e r to th e m a rk e t U s in g th e sa m e e x a m p le a b o v e ,
w he n ip h o n e s
a n d ip a d s a re p ro d u c e d in C h in a A p p le
c a n e n jo y fu rth e r c o s t s a v in g s in te rm s o f tra n s o rta tio n c o s ts
,
p =
be ca u se its C h in e s e m a rk e t is a t th e d o o rs te p o f its
p ro d u c tio n p la n t in C h in a T h u s n o w o f F D ls a llo w s .

g re a te r c o s t s a v in g s fo r firm s a n d a llo w s firm s to e n jo y a h ig h e r le v e l o t p iō M U

R n s litM io n
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.

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y d e te r io ra te , p la n t
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th ro u g h th e s o u rc e c o u n try th u s d is p la c in g s o m e tra d e fo r th e s o u rc e c o u n tr y z im p o rts in to th e s o u rc e
,

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to g ro w in g re s e n tm
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o u ts id e U S A , fo r eg , in M e x ic o , C h in a , In d ia a n d s o u th -
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h e to ıd s u p p o rte rs in F lo rid a W e a
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re liv in g th r o u g h t h e f t in th e h is to r y o f th e w o r ld
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ta x e s o n firm s w h ic h m o v e d p ro d u c tio n o u t o f U S A .

T h e s o u rc e c o u n tr y m a y a ls o e xp e ń e n ce a o s s o f ta x
ı re v e n u e fro m th e in v e s tin g firm s (d e p e n d in g o n
ta Jc tre a N a m n g e m e n ts b e tw e e n th e s o u rc e a n d th e re c e iv in g c o u n tr y o f th e F D I) .

T o m itig a t e th e a b o v e n e g a tiv e im p a c t o f F D I o u tllo w , th e re m a y b e a c a s e fo r g o v ts to in s titu te s o m e

'

p o ıic ie s to re d u c e th e s p e e d a t w h ic h jo b s a re lo s t .
(P le a s e re fe r to P ro te c tio h o ĺ s u n s e ti in d u s trie s in
ıe c tu re n o te s o n In te m a tio n a f T ra d e ) . H o w e v e r, th e m o s t e Ħe c tiv e p o lic ie s in th e lo n g te rm s h o u ld b e to
'

h e ıp id e n tify in d u s tr ie s th a t th e e co no m y m a y h av e po te n tia ıċ o m p a ra liv e a d v a n ta g ė a nd s u p p ly s

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e v e ls ・a n d to e q u ip w o rk e rs w ith th e re le v a n t
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m o v e m e n ts in fa c to rs o f p ro d u c tio n a re v irtu a lly id e n tic a l to th o s e u n d e rly in g in te rn a tio n a l flo w s o f g o o d s
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ábund a nt ( lo w p ro d u c tiv ity ) to n a tio n s w h e re th e y a rp s c a rc e X h ig h p ro d u ç tiv ity ) . La b o u r flo w a c ro s s

b o rd e rs in re s p o n s e to d iffe re n c e s in r e t u r n s (w a g e s ) a s lo n g a s th e s e a re la rg e e n o u g h to m o re th a n
o u tw e ig h th e c o s t p f m o v in g fro m o n e c o u n try to a n o th e r

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sa m e .
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a re į iłb s t itu te s ,fiì r e a c h o t h e r O n e c a n n o t c o n d u c t a s a tis fa c to ry s d y o f in te m a lİ o n a l tra d e w ith o u t

.

a ls o a n a ly z in g th e e m a tio n a ım o b ility o f la b o u r a n d c a p ita l

in ı . E co n o m is t R o b e rt J C a rb a u g h c o n s id e re d

th e ro le o f in te m a tio n a ï c a p ita l f l o w s ( in c lu d in g in v e s tm e n t) a s a s u b s titu te fo r tra d e in c a p ita l in te n s iv e

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p ro d u c ts ,
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tra d e in ı -
.

S im iıa r to tra d e a n d c a p ita i f lo w s , international m ig ra tio n h a s its fa ir s h a re o f s u p p o rte rs a n d o p p o n e n ts .

T h e e c o n o m ic e ffe c ķ o f m ig ra ü o n v a ry w id e ı
y . S o u rc e c o u n tń e s m a y e x p e rie n c e b o th g a in s a n d lo s s e s
in th e s h o rt te rm b u t m a y s ta n d to g a in o v e r th e lo n g e r te rm F o r re c ip ie n t c o u n trie s , m ig ra n t W o rk e rs .

m a y h e lp to a d d re s s la b o u r s h o rta g e s b u t m a y d e c re a s e d o m e s tic w a g e s a n d a d d to p u b lic b u rd e n .

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s o f international a b o u r m o b iıit y t o t h e R e c ip ie n t c o u n t r y

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Tm iiw o f f o re ig n w o rk e rs a d d s to t h e g g r e g a t e d e m a n d ; in te rm s o f c o n s u m p lio in in a n ec o n o m y .

T h is in c re a s e in A D le a d s to a m u ltip le in c re a s e in n a tio n a l in c o m e th ro u g h th e m u ltip lie r

p ro c e s s
a n d re s u lts in a c tu a l ro w th in th e s h o rt ru n
g .

A n in flo w o f fo re ig n w o rk e rs le a d s to a n in c re a s e in th e s u p p ly o f la b o u r In th e re c i ie n t c o u n tr
p y . T he
re s u lta n t in c re a s e in th e s u p p ly o f la b o u r in th e re s p e c tiv e m a rk e ts lo w e rs th e w a g e ra te , c e tens
pa rib u s . T h is lo w e r C O P b e n e f it p r o d u c e rs , in te r m s o f
(N o te th a t m a n y m ig ra n t
h i h e r
p r o f it sg .

w o rk e rs , e s
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to a c c e p t lo w e r w a g e s th a n th e lo c a l
,

Or k e r s a n d th is m a y fu rth e r re d u c e w a e c o s ts
g ) . At th e m a c ro le v e l, a s fir m s in c re a s e o u t u t le v e l
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g g re g a te h e n ce th e A S c u rv e s h ifts
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,
p p ly d in p a rtic u la r h ig h ly s k ille d , , a n f o r e i
gn ta le n t , w ill le a d to
in c re a s e in b o th th e q u a n tity a n d q u a ıil o f la b o u r, W n e r e t h e r e ís f u
y rth e r tra n s fe r o f s k i lls a n d
k n o w le d g e to lo c a l w o rk e rs , it i n c r e a s e s t h e r o d u đ iv it o f lo c a l la b o u r fo rc e to o le a d in g to p o te n tia l
p y ,

g ıo w th T he a bove ca n b e illu s tra te d by a r ig h tw a rd s h ift o f th e L R A S . H e nce ris in g la b o u r in flo w s

w ill s h ift A S fro m A S o to A S 1, le a d in g to in c re a s e s in b o th a c tu a l g ro w th » o m Y o to Y 1 a n d p o te n t ia l
g ro w th fr o m Y fo to Y f l -

T he c o u n try is a ls o a b le to re d u c e ı
ong te rm in ı
la tio n a ry p re s s u re s h e n c e a c h ie v in g s u s ta in a b le
e c o n o m ic g ro w th .

3 3 2
. . C o s ts o f in te rn a tio n a l ı
a b o u r m o b iı
ity to t h e R e c ip ie n t C o u n t r
y
So m e c o s ts to th e re c ip ie n t c o u n tr ie s a re o u tlin e d b e lo w .

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y ræ em in c o m e s a p s . W n ile th e c o u n try e x p e ń e n c e s a n in c re a s e in o u tp u t a n d n a tio n a l in c o m e

due to ı
a b o u r m ig ra tio n , th e g a in s m a y n o t b e e q u a lly d is tr ib u te d . If th e m ig ra n t w o rk e rs c o m e fro m
c o u n tr ie s p o o re r th a n th e ir re c ip ie n t c o u n tr ie s a n d a re th u s w illin g to w o rk fo r lo w e r p a y th a n th e
lo c a l w o rk e r , t h is m e a n s th a t w a g e s fo r jo b s w h e re m ig ra n t w o rk e rs a re in c o m p e titio n w ith lo c a ls
m a y b e d e p re s s e d T h is n e g a tiv e e ffe c t o n w a g e ra te s fa lls m a in l o n th e u n s k ille d d o m e s tic
w h o c o m p e te w ith a n d
.

a re
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s u b s ti ta b le b y im m ig ra n ts O n th e o th e r h a n d , h ig h ry s k ille d w o rk e rś
worker
.

(w h o a re a ls o in th e h ig h e r in c o m e g ro u p ) a re lik e ly to b e in g re a t d e m a n d b e c a use o f th e ir h ig h e r

p ro d u c tiv ity le v e l . T he y a re s o u g h t a fte r n o t j u s t b y lo c a l in d u s trie s b u t a ls o in th e i n t e r n a t i o n a l a b o u r

m a rk e t . By a nd la r g e ,
t h e
y a re lik e ly to k e e p th e ir o b s j , e n
jo y g re a te r jo b p ro s p e c ts a n d e v e n e n jo y
w a g e in c re a s e s . T h is c o n tr ib u te s to w o rs e n in g in c o m e in e q u a lity a s w a e s in s u c h in d u s trie s ris e
g .

Ho w th e g o v t m a y ń it ig a t e th e a bo ve is to e n s u re t h a t t ra in in g p ro g ra m m e s a re a v a ila b le fo r th e
lo w s k ille d w o rk e rs w h o a re n e g a tiv e ly a ffe c te d b y th e in flu x o f fo re ig n w o rk e rs . ı
n c re a se in th e

p ro d u c tiv ity o f th e s e lo c a l w o rk e rs w ill m a k e th e m ś _

s u b s titu ta b le by c h e a p e r \o re ig n w o rk e rs .

R a N es n s M u lio n
ı 8
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 Year 6 H 2 & c n o m i c s しe c ￠ uÆ N u e s 2 0 1?
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Fu rth e r , ia M b s id
s o c l p ro g ra m m e s rik e T ric o m e s u p p le m e n t, y o n e d u c a tio n a n d p u b ı
ic h o u s in g a re
a ls o n e c e s s a r to re d u c e e n e c ts o f w id e n in g
y in c o m e g a p .

æi m n g o v ęm m e n t re s o u rc e s a ris in q fr o m im m ig ra tio n o f u n s k ille d la b o u r . ı

n th e E u ro e a n U n io n
p
w h e re th e re is fre e m o b ility o f w o rk e rs a m o n g m e m b e rs o f th e u n io n ke rs a re a llo w e d to s ta
y in
, w o r

a n y m e m b e r c o u n trie s S
. o m e m e m b e r c o u n trie s th a t p ro v id e g e n e ro u s w e lfa re p a y m e n ts to th e
e c o n o m ic a ll d is a d v a n ta fo re ig n e rs w h o w ill e n o
y g e d m a y a ttra c t a n in Ħu x o f u n p ro d u c tiv e j y w e lfa re
b e n e fits a t th e e x e n s e o f d o m e s tic re s id e n ts T h is is a lle e d to b e a re a s o n c o n trib u tin
p g g to th e
.

o u tc o m e o f b r e x it a s im m i ra n ts a d d e d to th e s tra in o n th e h e a lth c a re s s te m in u k
g y (h o w e v e r , it .

h a s b e e n c o u n te r
g u e d th a t th e c h ild re n o f th e s e im m ig ra n ts w ill la te r e n te r th e la b o u r fo rc e a n d
-
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b e g in p a y in g ta x e s E m iric a l e v id e n c e s h o w s th a t w h e n it' s a ll a d d e d u p , m o s t lo n g lc u la tio n s -

p . r u n c a

sho w M a t im m i ra n ts m a k e a n e t o s itiv e c o n tr ib u tio n to

g p p u b lic c o ffe rs .
)
In c re a se in In flo w o f fo re ig n w o rk e rs b rin g a b o u t external o s t s a s s o c ia te d w ith
e x t e ! i .

o v e rc r o w d in ; h i h e r In S in g a p o re , fo r e x a m p le , th e re h a s
g g g e n e ra l n o is e le v e l, c o n llic t a n d c rim e .

b e e n a s tra in o n in fra s tru c tu re lik e th e m a s s

p u b lic tra n s p o rta tio n s y s te m w h ic h b re a k s d o w n
* e q u e n u y d u e to th e h e a v ie r u s a e b e c a u s e o f th e la r e in flu x o f fo re i n w o rk e rs
g g g .

M e a s ıır e s m a y b e im
'

tric t In
p o s e d to r e s in n o w o f f o re ig n w o r k e rs d e p e n d in g o n th e c o u n t r ie s .

S in g a p o re t h e i n f 【u x o f s k ille d w o rk e rs is lim ite d b y th e n u m b e r o f w o rk p e rm its g ra n te d b y th e

-
, lo w

g o v e r n m e n t T h is is d ep e nd ent o n th e in e e d s o f th e eco no m y . D u rin g p e rio d s o f b u ild in g b o o m , fo r

e x a m p le , m o r e fo re ig n c o n s tru c tio n w o rk e rs w o u ld b e a llo w e d in . Such la b o u r m ig ra tio n te n d s to be
te m p o ra ry T he w o rk e rs d o n o t q u a lif fo r c itiz e n s h i a n d a re n o t a b le to s ta y in th e c o u n try w h e n th e re
y p
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a re n o jo b s a v a ila b le fo r th e m ,

3 3 3. . B e n e f it s o f I n t e r n a t i o n a l ıa b o u r m o b ilit t o t h e S o u rc e C o u n t r y (w h e re la b o u r R o w s f r o m
y )

T he m a in b e n e lits fo r th p s n \ı
rc e c o u n tr y a ris e fro m th e in c r e a s e in re m itta n c e s ū o m w o r k e rs w h o h a v e
e m ig ra te d . T ho se w h o e m ig ra te o fte n se n d v o lu n ta r y re m itta n c e s ba c k to re la tiv e s a nd fr ie n d s in t h e ir
ho m e c o u n tr y . A W o rı
d B a nk s tu d y in d ic a te d t h a t re m itta n c e s to d e v e lo p in g c o u n tr ie s a m o u n te d to
U S $ 4 0 4 b illio n in th e ye a r 2 0 13 a nd M is fig u re is e x p e c te d to ris e fu rth e r to U S $ 5 16 b illio n in 2 0 16 .

S o m e b e n e fits a ris in g fro m th e in c r e a s e s in re m itta n c e s , e s

p e c ia lly fo r d e v e lo p in g c o u n trie s ,
a r e a s

fo llo w .

'

R e m itta n c e s fro m w o rk e rs a b ro a d c a n c o n s titu te a m a

jo r c o n t rib u t io n to G N P I R e m itta n c e s a re
u s e d to fin a n c e th e p u rc h a s e o f b a s ic c o n s u m p tio n g o o d s , h o u s in g , c h ild re n s e d u c a tio n a n d
'
h e a lth
c a re H e n c e r e m itta n c e s h e lp in p o v e rty re d u c tio n
. d im p ro v e ıiv in g s ta n d a rd s , n n
.

'
R e m itta n c e s a ı
s o p la y a h u g e ro le in th e s o u rc e c o u n trie s e c o n o m
y ı
t is
. a s o u rc e o f Ê i t a l fo r s m a lı
b itf in e ś s ė d a nd e n tre p re n e u ń a l a c tiv itie s . H o u s e h o ld s sa ve exce ss m o ne y in b a n ks a nd th a t th is
'

a c ts a s a s o u rc e o f f u n d s ıw h ic h ca n b e u se d fo r in v e s t ı
n e n t p u r p a s e s ł T h is c o n trib u te s to
s p u rr in g b o th ä c t u a ıa n d p o te n t la ı grortllin th e e co no m y
X iH īX i :
" h "
.
・
'
ıJ .
,

R e m itta n c e s o fte n c o n trib u te to th e b a la n c e o f p a y m e n ts . In c re a se s in re m itta n c e s fro m w o rk e rs

w h o ha ve e m ig ra te d le a d s to a n in c re a s e in u n ila te ra l tra n s fe r in th e c u rre n t a c c o u n t , he nce
liipfb*ing th e B O P p a s it io ı
ï o f th e c o u n try -

3 3 4
. . C o s ts o f in te m a t io n a ıı
a b o u r m o b iı
ity to t h e S o u rc e C o u n t r y ( w h e r e la b o u r f ı
o w s f ro m )

T he re a re h o w e v e r s e v e ra l c o s ts to th e s o u rc e c o u n trie s a s fo llo w s

B ra in d ra ın ,
'

rh is
ı in c lu s th e o u tw a rd m ig ra tio n o f h iģ h ly e d u c a te d a n d s k ille d w o rM r in s e a rc h o f
' ' q
be T he
_

tte r p ro s p e c ts in fo re ig n c o u n tr ie s . s o u rc e co u nu y w ill s u n e r a l i i f p re c ıo u s h um a n
re s o u rc e s a n d th u s fa c e ı im H a t io n s t o p o t e n t ia ıe c o in ó in ic
g ro rM l Į ,

W n e re s k ille d ıa b o u r is in s h o rt s u p p ly in th e h o m e c o r , t h e lo s s o f s u c h w o rk e rs le a d s to m
y ì
g
lp e r t a p ib - lıii i iń ië l n o t a n in c re a s e T h e OPĺ iôŕifiiìinisı
'

to th e h o m e c o u n try m a y b e e v e n la rg e r.

th a n in d ic a te d by th e m a rk e t w a g e if th e s k ille d w o rk e rs g e n e ra te o th e r b e n e fits (p o s itiv e

e x te m a litie s ) To r th e h o m e co u n ı
ry in te rm s o f
Ħńıimiljdeas\ re s u ltin g in in n o v a tio n a n d
im p ro v e m e n t in th e ı
e ve l o f te c h n o lo y
g . ın a d d itio n , t o t he e x te n t th a t th e ho m e c o u n try ha s
s u b s id iz e d th e e d u c a tio n o f th e s e p e o p ı
e , th e o u tw a rd ig ra tio n re p re s e n ts a lo s s o f p ila ų
-
m

市旆峒

R aN es l n s M i o n 9
Eco no m ic s D e p a rtm e n t
 Ye a r 6 H 2 E c o n o m ic s L e
d u æ N o s 2 0 17
International E c o n a m ic s G b b d i s a

on w h ic h
'

a ß w m iw a s E )ip e c te d l F o r e x a m p le , In d ia lo s e s m a n
t ā r ì e tū ŕ n
In fo rm y o f its b r ig h te s t
.

a tio n T e c h n o lo
g y s p e c ia lis ts a n d e n g in e e rs to S ilic o n V a lle y in U S A e v e r
y y e a r .

'

àf e x p o rt c o m
p e tı
t iv e n i į s ś łd u e to a p p re c ia tio n o f c u rre n c y . M c r e a s e d Re m itta n c e
.

ca n
le a d fo r th e ir c u rr e n c I U U
' y in th e fo re ig n e x c h a n g e m a rk e t . T h is c o u ld le a d to th e
a p p Ĥ Ëi i î ðT th e d o m e s tic c u rre n c
y w h ic h w o u ld in t u m re d u c e th e p r ic e c o m p e titiv e n e s s o f M e ir
e x p o rts in o v e r s e a s m a rk e ts .

3 3 5
. . B e n e lı
ts o f In t e m a t io n a ııa b o u r m o b iıit y to th e w o rı
d e c o n o m y

In te m a tio n a ıı
a b o u r m o v e m e n ts c a n
S j a s
'
e n h a n ce th e w o rld e co no m y m ig ra n t w o rk e rs no w
fro m u s e s o f lo w e r
p ro d u c tiv ity ( a n d th u s lo w e r w a g e s ) to h ig h e r p ro d u c tiv it
y ( a n d h ig h e r w a g e s ) F ro m .

a n e c o n o m ic s ta n d o in t if m
p a rk e ts a re w o rk in g a n d la b o u r b o th s k ille d a n d u n
,
( s k ille d ) is p a id its
m a rg in a ı ro d u c t in b o th th e re
p c ip ie n t a n d s o u rc e c o u n trie s , in te rn a tio n a l la b o u r m
o v e m e n t s h o u ld le a d
to a n in c re a s e in e Ħic ie n c a n
y q w N W W \ .

m ā r m r o f w a g g ș $b e tw e e n c o u n trie s
W he n tw o c o u n trie s e n te r a f re e tra d e a re e m e n t w
g , a
g e s fo r id e n tic a l jo b s in b o th c o u n trie s te n d to
þp i t ì ä c h - b i n M T o illu s tra te t h is , s u p p o s e th e w o rld c o n s is ts o f 2 c o u n tr ie s c o u n tr A h i h
y t g
w a g e ) a n d c o u n tr B lo w w a e th a t w
y ( g ) e re in iü a lly in is o la tio n .

'
7 10 Q ty o f la b o u r 4 7 Q ty o f la b o u r

T h e d e m a n d fo r la b o u r c u rv e s ( D a n d D e ) a re th o s e
A o f th e re s p e c t iv e c o u n t r ie s . T he o rig in a l
s u p p ly o f la b o u r c u rv e in e a ch c o u n try a re in tu m re p re s e n te d b y S A a n d S e - O rig in a lly th e
a v e ra g e w a g e ra te s in c o u n try A a n d c o u n try B w e re $ 9 a n d $ 3 re s p e c tiv e ly - R e s p o n d in g to th e
W
"

ge d i« e r e n ü a ı
* w o rk e rs in c o u n try B m iġ r ä të to c o tı
n try th is le a d s to a re d u c tio n in la b o u r
'
s u p p y in c o u n try B fro m S e to S d a n in c re a s e in ċ o u n w A fro
'
m S A to
a g e &TesT h isill
a n
B S ' w
.

c o n tin u e to fa ll in c o u n tr y A a n d ris e in c o u n try B u n til th e y a re

.

eventu alltñēqliz .
,
ho w e v e r, a s s u m e s th a t la b o u r im o m o g e n eo us a n d th a t m a rk e ts a re w o rk in
m o b i l e n d g W
ra n d æ rfe c tı
y ・

Wor o u tp u t in c m a s ė s r
In th e e x a m p le a b o ve ,
c o u n t r
y B ha s a lo w e r le v e l o f d e m a n d fo r la b o u r ( D e ) b e c a u s e la b o u r
Fiio d u đ iv ity is ı
ow ä m he o uM o w o f la b o u r f ro m co u n ı
ry B w ill re s u lt in a s m a lle r r e d u c tio n in
o u to u t v a lu e c o m p a re d to th e in c re a s e in o u t p u t v a lu e a r is in g * o m th e im m ig ra tio n o f w o rk e rs
in to c o u n try A . T he n e t re s u lt is a n in c re a s e in w o rïd u tp u t W a g e d iĦe re n tia ls a ttra c t w o rk e rs to
￡
.

th o s e a re a s w h e re th e y w ill b e m o re fficiėiı
tlyiseiiJ A ls o ,
w o r ke rs a ls o te n d to m ig ra te fro m
h o m e c o u n trie s w h e re e m p lo y m e n t o p p o rtu n itie s a re lo w (a n d th u s th e y c o u ld b e u n e m p lo y e d )
to c o u n trie s w h e re j o b o p p o rtu n itie s a re m o re a b u n d a n t O u t u t e x a n d s in
p p . re c ip ie n t c o u n trie s
M M o u t a c o rr e s p o n d in g o u tp u t re d u c ı
io rï in s o u rc e c o u n trie s .

T o s u m u p , t h e r e a r e b ė n e fits a nd c o s ts o f in te rn a tio n a l m ig ra tio n to b o th th e s o u rc e a n d re c ip ie n t 一

c o u n lr ie s , a n d to th e w o ld . A n a tio n w h ic h ( a t a n y tim e is lik e ly b o th a s o u rc e a n d a r e c ip ie n t c o u n lr y ) is
e to e ffe c tiv e ly c o n tro l th e s k ilıc h n rĦc tr pr is ü c s o f la b o u r fı
a bı o w s in a n d o u t o f th e c o u n tr y w ill b e a b le t o
国
R a N e s in s !ittÆ o n 与
E co no m ie s D e p a r e n t

国
の Year 6 H .
.
m しe c fu Æ M )te s 2 0 1 7
lm e m a h o n a ıE c o n o m

の
G lo b a lis a tio n

n e g a te s o m e o f '
g e in g p o p u la tio n b n đ s h rin k in g !
の Fo
th e n e g a tiv e e « e c ts . r e x a m p le , S in
g
a
p
o r e f a c e s a n a

l a b o u r fn m e f a n d m a th e ir fu t u r e e c o n o m ic g ro w t h ın a llo w in g th e
y la c e s e r io u s c o n s tr a in ts o n .

im m ig ra tio n o f fo re i n w o r k '

M ow o f lo c a l ta le n ts Ir
g e rs a n d ta le n ts m a n a
g e th e .

の
u
it h a s t o o
,

3 4 . G ı
o b a ı
is a t io n in t h e S in c o n te x t
g a p o re

の G lo b a lis a tio n in S in a o re h a s a th e re d s e e d in th e w ith th e s ig n in g

g p g p pa st 2 0 y e a rs of m a ny Ħ A s .

S in g a p o re h a d s ig n e d b ila te ra ıF T A s i* ith A u s tra lia h e U S a n d th e E u ro

の p e a n F re e
J a a n N e w Z e a la n d , t
, p ,

T ra d e A re a ( E F T A
) g ro u p g s t m a n y o th e r c o u n trie s T h e , a m o n . to ta l n u m b e r o f re g io n a l a n d b iıa ıe ra l
Ħ A s it h a s w ith th e re s t o f th e w o rld is a s m a n a s 2 0 R e le r to
y [ A p p e n d i× 4 lo r m o r e d e ta ils o f F T A s in

の
.

S in g a p o re 1 .

S in g a p o re
の
'

is a ı
ıe c o n o m y l s m a ll in te rm s o f p o p u la tio n s iz e a n d th e re fo re a v e ry s m a ıl
v e ry s m a

d o m e s tiic m a rk e t ın s e ll its
g o o d s a n d s e rv ic e s It is a ls o v e ry s m a ll in te
rm s o f ı
a ck o f lik e ra w
re s o u r c e .

m a te ria ls d T he e x te n t fro m g lo b a liz a tio n w h ic h

の
, la n
,
la b o u r . re fo re ,
S in
g a p o re h a s b e n e fille d to a ı
a rg e
a llo w s it to s e ll its a rk e t a n d h a v e a cc e ss to re s o u rc e d
g o o d s a n d s e rv ic e s to a h u g e g lo b a l m to ( ra w
m a te ria ls a n d la b o u r F u rth e r , fo re ig n d ire c t in v e s tm ha ve
) e n ts fro m M N C s p ro v id e d e m p lo w n e n t

の
\
.

b p p o rtu n itie q fo r s in g a p o re a n s a n d a llo w e d tra n s fe r o f te c h n o lo g y a n d m a n a g e m e n t e x p e rtis e to lirm s

a n d a d d e d to th e lix e d c a ita l fo rm o in in a re In a n u ts h e ll,
p a ti n S g po . S in
g
a
p
o r e h a s b e n e f i tte d b o th a t th e

の m ic ro

g lo
a s
b a liz a tio n
w e ll a s a t th e m a c ro le v e l . H o w e v e r, it h a s a ls o s u Ħ e r e d th e m a n
y
n e
g
a t iv e

To
e f fe c ts o f
_
-
to o , m o s t n o t a b l
y th e w id e n in g in c o m e g a p \a nd th e in c re a s e d v u ı
n e ra b ilily . e x te m a ı
shàcks *n S in g a p o re
の
nd to a llo w g re a te r w e a lth
・

.
, t h e k e c h a l le n e is to c re a te a m o r e in c ıú s iv e ro w th
y g g

c re a tio n fo r th e m o re v u ı
n e ra b le g ro u p s a m o n g ils p e o p le .

￠
"
ĦP P e n d ix 6 M a k in t h e m o s t o f G lo b a lis a t io n
'
is c o m u ls o r r e a d in . It illu s tra te s w it h e x a m p le s
の
g y g , .
p

th e b e n e fits a n d c o s ts o f g lo b a liT a tio n to S in g a p o re a nd th e re le v a n t n e e d e d p o lic ie s to c o p e w ith th e

n e g a üve e « ec ı
s .
)
の 3 4 1 B e n e fits o f G lo b a lis a tio n to S in
g a p o re
. .

の 3 4 1 1 M
. . . a c ro e c o n o m ic b e n e f it s

回 Tıi*
ig ë r M a ı* e t ġ in c re a s e s iń
'

A D \ a c tu a l ġ i o * lth & h ig h e r e m p ı
o y ń e n ıı
e v e ls
G lo b a lis a tio n e n c o u ra g e s fre e r tra d e th a t is a lig n e d w iı
h th e p rin c ip le o f c o m p a ra tiv e a d v a n ta g e . A s

国 m e n tio n e d
e n h a n ce
p re v io u s ly
th e ir c o m p a ra tiv e
, s
\
ia liz

a d v a n ta g e
a t io n b a s e

in
d o n th e th e o r
y o f c o m p a ra tiv e a d v a n ta g e a llo w s c o u n tr ie s to

p ro d u c tio n , h e n c e e x
p
o s in
g
th e c o u n tr
y
to la rg e r e x
p
o r t

m a rk e ts in te m a tio n a lı T h is in c re a s e s e x p o rt d e m a n d a n d h e n ce e x p o rt re v e n u e
の y fo r th e S in g a p o re
.

'

eco no m y . A s a s m a lıa n d o p e n
economyį th a hı
g h p ro p e n s ity to impoq S in g a p o re
'
s e x
po rt re v e n u e
ne e d s to b e h ig h in o rd e r a c h ie v e a fa v ã iiiā b lė B O T þo s itio n . M o re o v e r, th e in c re a se in n e t e x p o rts
の c o n trib u te s to a n in c r e a s e in A D .

圆 ıt is a ıs o p o s s ib le th
S in c e S in g a p o re h a s
a t e c o n o m ic
b e e n v e ry a c ı
iv e
in te g ra tio n w ill s tim u la te g re a ı e ř
in th e s ig n in g o f Ħ A s , i n v e s
.

to
In v e
rs w
sM
i ll
ę n ts
fa c e a
i n n o
r e m o
in to

v a ı o
S in g a p o re
r r e d u c ü o n
.

in ta riffs w h e n th e y p o rt th ro u g h S in g a p o re , ha n c in g t h e i r Ë i Ñi i t c o iiı
圆 p e ü tiv ë n ë s ġ T h is in c r e a s e s
E x e n
.

theirinjed ra te o f re tu m lo n in v e s tm e n t a n d m a y th u s in c e n tiv iz e th e m to s e t u p th e ir o p e ra tio n s in

S in g a p o re . Tog e th e r , th e in c re a s e s in ī ië t '" x p o rts á n d in v e s tm e n tq re s u lt in in c re n m s in A D w h ic h
圆 g e n e ra te e c o n o m ic g ro w th ,
in c r e a s e d w e a lt h a n d m o r e
jo b s , e s p e c ia ll y s i n c e S in
g
a
p
o re h a s a s m a ll

do m e s tic m a rk e t a n d re ly h e a v ily o n e x p o rts a n d in v e s lm e n ts fo r g ro w th .

德 F D I ín flo w + fn c re a s e s irï p ro d u c t iv e c a p a c ıtr + p o te n tia t g ro w th

ın llo w s o f fo re ig n in v e s tm e n ts (fo r e g y c e A e ro s p a c e E n g in e e rin g S h e ll O il R
国 e fin e ry
, R o lls R o B a « e r
, ,

H e a lth c a re ) le a d to h ig h e r le v e is o f c a j i i ı Ë c c u m u ıa tió n ıte c h n o lo g ic a l a n d s k ills tra n s fe rs th a t re s u lt in

h ig h e r ıe v e ls o t p ro d u c u v iv þ s w e lı a s T p ro d u c t iv e c a p a c ity ł T h is e n h a n c e s p o te n tia l g ro w th fo r th e
圆
.

S in g a p o re e c o n o m y fo f in a b le in lla tio n a rn lo n g te rm g w w w
,
a l lo w in
g ,s i rs t a
, n a n
-
.

圆 R e d u c tio n in in f la tio n a r y p re s s u r e s

F u rth e rm o re ,
it w a s o b s e rv e d t h a t d a t a in S in g a p o re show s th a t th e o ft c ite d tra d m fF b e tw e e n h ig h

會 e c o n o m ic g ro w th ra te a n d ris in g in lla tio n m a y b e i n i h i z e d b y g lo b a liz á tió rt T h e e n tr o f c o u n trie s s u c H

a s C h in a in to th e w o rld m a rk e t h a s p u t d o w n w a rd p re s s u re o n im p o rt
y
th a t o f c o n s u m e r priceespeciaï ı
y
go od s a n d s e rv ic e s M o re o v e r , w it h h is h a s g re a tly d iv e rs ifie d S in g a p o re
'
im p o rt
m o r e s i n in o f

會
.

g Ħ A s , t s
g

R n s titu ü o n
e s ł
a Ħ】

E c o n o m ic s D q p a r ım e n t
 Ye a r
In
6 H2conomics L e c tu re N o te s 2 o o
te m a t,o n a l E c o n o m ic s : G lo
b a lis a tio n

Pa rM e rs fo r b o th co n s u m e r a n d in te rm e d ia te th is w ill h e lp
g o o d s a n d to lo w e r th e te n d e n c
co st y fo r im p o rte d
pu s H in n a tio n
-

. .

3 4 1 2
. . . M ic ro e c o n o m ic b e n e f it s

'

E c o n o m ie s o f s c a ı f r o m iÈö A 9
'
'

ą s
pec ia ı
lz a tio A + lá ı
ıin u n it e n h a n c e c o m
p a ra t iv e a d v a n t a g e in
p ro d u c t io n a lıo c a t iv e
D ue '
e f fic ı
e n c y
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q p e t e f m ŕ àd m ğ . A ll in a ll, th is a llo w s
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B ro a d e r m a rk e ts m a y a ls o p ro m o te g re a te r c o m p e titio n a m o ng p ro d u c e rs . It is o fte n fe lt th a t tra d e
re s tric tio n s p ro m o te m o n o p o ly p o w e r, w h e r e b
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m o v e m e n t to m o re o p e n m a rk e ts , t h e
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le s s e n e
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g
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T o w e r T ra n s it) h a v e b e e n
g ra n te d lic e n s e s to o p e ra te in S in g a p o re S u c h in c re a s e d c o m
p e titio n s h o u ld
.

s p u r d o m e s tic p ro d u c e rs to u n d e rta k e in v e s tm e n ts in n e w e u i m
q p e n t, t e c h n o lo g ie s , a n d r o d u đ lin e s t o
- p

m iiñ p ë lē ın o iđe r to s ū rv iv e l T h is a ls o h a s t h e e Ħ e c t o f h o ld in s d o w n c o s ts l a n d p e rm ittin e x a n d e d ĺ

g p
le v e ıs o f o u tp u t F o r c o n s u m e rs , t h i s m e a n s a w i d e ĥ w rie
M a s w e ll a n d s e rv ic e s a$igherquáı
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3 4 2. . C o s ts o f G ı
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R ıS i n g i r a ! u n e m p ￠o y m ę n t l
S tro n g c o m p e tiü o n fro m e m e r g in g e c o n o m ie s w ith a c o m p a ra tiv e a d v a n ta g e in p ro d u c in g īl i« W a ı
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.

th e M N C s p ro d u c in g m o re la b o u r in te n s iv e
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-

ha ve e ith e r d o w n -
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o p e ra tio n s o r e v e n m o v e o u t o f S in a o re c o m le te ı T h
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th o s e w h o la c k th e s k ills to m o v e in to th e o b s c re a te d in th e üë d n d tis tr i
ı T h is h a s
j Đ1 g l i f i ı Ĥ d ed .

p a rtia ıly c o n tr ib u te d to M e p ro b le m o f s tr u c tu ra l u n e m
p lo y m e n t in in g a p o re Ś .

(R e fe r to e a rlie r le c tu re n o te s o n s u p p l s id e
y p o lic ie s in S in g a p o re to re d u c e s tru c tu ra l u n e m p lo y m e n t .
)

R a flıe s n s titu tio n

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R is in g in c o n ië in e
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G lo ba ı
is a tio n h a s re s u lte d in a d iv id e b e tw e e n th e h a v e s a n d h a v e -

ts in m a ny c o u n trie s
g ro w in g
n o

a c ro s s th e w ith ı lo b a is a tio n
w o rld . In S in g a p o re ,
a n in c re a s in g G in i c o e f fic ie n t h a s e m e rg e d
j
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C o e f fic ie n t h a s b e e n ris in 4 3 0 in 0 0 to 0 4 5 2 in 2 0 1 0 a n d ĺ o '" S S ı a fte r ta x e s a n d
g fr o m 0 . th e y e a r 2 0 (
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.
re a s e s ig n a le d th a t th e p e o p le th e ir s k ills ,

kn ow ı e d g e a n d e x e rtis e
p c o m m a nd a p re m iu m .
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c le a n e rs ) h a v e to c o m
p e te w ith th e c h e a p e r ıa b o u q fro m C h in a , V i e t n a m , In d ia a n d th e re g io n , w h ic h

Ħe p re s s e s th e ir w a g e s n d re s u lt in ris in g in c o m e d is p a ritie s w ith in th e c o u n try .

( R e fe r to e a rlie r s e c tio n 3 2 2 a n d o th e r s u in g a p o re to re d u c e w id e n in g in c o m e
p p ly s id e p o lic ie s in S
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.
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3 4 3 Fu t u r e C h a lle n
g e s f o r S in g a p o r e
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s h ru n k e c o n o m ic d is ta n c e s b e tw e e n n tio n
a s a n d m a rk e ts a n d is p o s s ib ly re d u c in g th e d e m a n d fo r s o m e
c o n v e n tio n a l ro le s s u c H a s o v e rs e a s h e a d u a rte rs a n d o th e r h iib s fiŕ v ic e s & n d a n c illa r s e rv ic e s T h is is
q y .

e s p e c ia lıy s o a s th e c o m p e titio n fo r in v e s tm e n ts , e x p o r t m a r k e t s a n d s k i l le d l a b o u r i n t e n s ifie s a s m o re

ëm iiñi i e m b ra ċ ë o p e n d o o r tra d e a n d in v e s tm e n t p o lic ie s a n d s o m e o f S in g a p o re
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s h u b ro le s a re
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,

ge o g ra p h ic a l a d v a n ta g e , w it h a la r
ge r p o o l o f la b o u r a n d a s it to o h a rn e s s g re a te r u s e o f in fo rm a tio n a n d
c o m m u n ic a tio n te c h n o lo S in ta k e fu ll a d v a n ta g e o f th e
g y .
g a p o re m u s t a ls o c o n tin u e to i m m e n s e Ħæł
Þ ä tėiıtiá l f m i .

Iidińg p a ė In d ia a nd C h in a w h ile m a n a g in g th e n e g a tiv e a s p e c ts o f ta p p in g th e

g ro w th o f th e s e g ia n ts .

tıim ŕd ıä o k iŕ iġ ı ttitu d e o f th e a ı c h a lle n g e S in g a p o re

ł m a jo r tra d in g p a rtn e rs o f S in g a p o re is so a to ,
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T he ś fo ńd tra
e s p e c ia lly
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th a t o f U S A . d ire c tio n o f r i i i ñ ċ à re ig ń a d e
i l be
w iı p ro b le m a tic fo r

g a p o re , g iv e n th a t o u r e c o n o m ]í re lie s h e a v ily o n g lo b a l tr a d e .

4 C O N C L U S IO N (D o e s g lo b a lis a tio n re s u lt in n e t g a in o r n e t ı
o s s fo r th e w o rld ? )

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ı
n te m a ü o n a l tra d e h e ï p s c o n o m i c d e v e lo p m ė ń t Iw h e n a c o u n tr y Ħi r b d riv e ifs e c o n o h ic g iå m iı

Exp o rt le d g ro w th w a s th e c e n te r p ie c e o f th e in d u s tria l p o lic y th a t e n ric h e d m u c h o f A s ia a n d le ft m illio n s

-

o f p e o p le th e re fa r b e tte r o « B e c a u s e o f g lo b a lis a tio n m a n y p e o p le in t h e w o rld n o w tiv e lo n g e r th a n

.

b e fo re a n d th e ir s ta n d a rd o f liv in g is fa r b e tte r G lo b a lis a tio n h a s g iv e n m a n y p e o p le a c c e s s to .

kn o w le d g e w e ll b e y o n d th e re a c h o f e ve n th e w e a lth ie s t in a n y c o u n try a c e n tu ry a g o . S ta tis tic a l d a ta

s u g g e s ts th a t in te rm s o f a g g re g a te q u a lity o f life in d ic a to rs , (d e c lin in g in fa n t m o rı
a lity , lo n
ge v ity a n d

in c o m e fo r e x a m p le ) , t he re is a g g re g a te g lo b a l im p ro v e m e n t .

H ow e ve n inte rna tio nal e c o n o m ie s a re a b le to mod ern ize a n d e n jo y th e b e n e fits o f g lo b a lis a tio n o n
th a t g o v e rn m e n ts a re a b le to im p ro v e
c o n d itio n t h e d u c a t i o r T s y s t e m p ro v id e b e tte ć iififra s tim ū iē l

(c h e a p e r e le c tric ity , b
e t te r r o a d s a n d in v e s tm e n ı in c e n tiv e s F o r e x a m p le , M e ) . x ic o w a s n o t a b le to
ro s e r a s m u c h f ro m N A Ħ A b e c a u s e o f c o rru p tio n , p o o r e d u c a tio n , r e d ta p e b lin g in fra s tru c tu re
p p , c r u m
,

la c k o f c re d it a n d a tin y ta x b a s e (fa c to rs le a d in g to w e a k e c o n o m ic d e v e lo p m e n t) . E c o n o m ic in te g ra tio n

c a n p ro v id e a d d itio n a l w e a lth b u t th e b e n e fits to a n a tio n is d e p e n d e n t o n w h e th e r th e g o v e r n m e n t c a n

aı ö ċ ä te th e ģ à iń ś e q u ita b ly ıto th e n e c e s s a ry a re a s a n d p a rtie s ıf a g o v e rn m e n t d o e s n o t a llo c a te n e w .

th fa irı
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'

lik ely c o n trib u tin g fa c to r to a Æ lv is iv e SOCiętys se e n in th e o u tc o m e o f t e R E X ı ı a n d th e T ru m p

p re s id e n ü a l v ic to ry in U S A re c e n tly .

T he b a la n c e s h e e t o f g ıo b a lis a tio n re m a in s in c o m p le te T h e re is a n e e d to c re a te g lo b a ı in s titu tio n s .

c a p a b le o f s e c u rin g g re a te r s ta b ility in th e s y s te m E c o n o m ic re g u la t io n , e n v iro n m e n ta ı s e c u ń t y , t h e .

c o n ta in m e n t o f o rg a n iz e d c rim e a n d te rro ris m a n d th e e n h a n c e m e n t o f w e lfa re m u s t b e p ro v id e d

c o lle c tiv e ly . A s tro n g e th ic a l c o m m itm e n t to fa irn e s s a n d th e d e v e ı
o p m e n t o f in s titu tio n s th a t c a n d e liv e r

it w ill b e re q u ire d .

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d r iv e r o f g lo b a liz a tio n .

Eco n o m ie s a c ro s s th e w o r ld a re b e c o m in g m o r iiitēğtėd t h r o u g t r ÑĦ Æ
awngementą m a d e b e tw e e n c o u n trie s to re d u c e o r e lim in a te tra d e b a rrie rs b e tw e e n ń e m .

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tra d e a re a o r a c u s to m s u n io n o r a c o m m o n m a rk e L
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in c re a s e d re g io n a l p m b le m s fo r m e m b e rs , r e a t e r o ı ig o p o ıiś « c ċ b ıu ś io n & n d v a rio u s

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rk e rs m a y
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G lo b a lis a tio n b rin g s b o th be n e tils Ė n d c o s ts to e c o n o m ie s . T he m a in c h a lle n g e fo r g o v e rn m e n ts

is to e Ħe c tiv e ı
y im a x im iz e t h e p o te n ü a l b e n e liĦ a n d m in im iz e th e in e v ita b le u n in te n d e d a d v e rs e
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O Êi i i ğ l i s a c e n tra l e le m e n t o f e c o n o m ic g lo b a lis a tio n ,

r e
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a n o th e r e x t e r n a l o rg a n iz a tio n . A ba n k m a y a ls o o u ts o u rc e th e c u s to m e r s e rv ic e a s e c t o f its o e ra tio n s

p p
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ba n k in g b u s in e s s .

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th e re b y e n h a n c in g th e ir i n lė m a ü o n a ıc o m p e titiv e n e s s ￠ n d p ro fita b ility . T h is w iı

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O u ts o u rc in g a c ro s s ì ń te m á lió n a ı b o ŕ d e r d s o m e tim e s c a lle d s h ò r i n q l o c c u rs w he n ,

fD r e x a m p le , a

firm in th e U n ite d S ta te s
-

trie s to re d u c e c o s ts b y © gç şţi its p ro d u c tio n fa c ilitie s to o th e r c o u n trie s a n d

h iń n g c h e a p e r fo re ig n w o rk e rs F o r e x a m p ıe , . A
'

p p le s m a n u fa c t u r in
g a n d a s s e m b ly o f its p o p u la r
p ro d u c ts lik e ip h o n e s a n d ip a d s is d o n e in S h e n z h e n , C h in a ,
w he re th e la b o u r c o s ts is re la tiv e ly lo w e r .

W n iıe th e re a re s e v e ra l o b v io u s a d v a n ta g e s to o u ts o u rc in g a nd o ffs h o in g , s o m e w o rk e rs w ill b e h u rt

be c a u s e t h e y Ħ b fo re ig n w o r k e rs w h o a re w illin g to w o rk f o r le s s m o n e y . T h e re a ls o te n d s
to b e » i i n s f e r b f W e á lM * o m la b o u r to c a p ita l o w n e rs .

R a M a s ın s M u tio n 14
E co n o m ic s D e p a e n t
 Ye a r 6 门口门lie s L e c tu 「罾 N o te s 2 0 1 ア
ł
n te m a tio n a łE c o n o m ic s o b a ı
G ł is a tio n

m pm d ix 2 W ío a n d o t h e r ın t e r n a t io n a ıın s t it u t io n s a n d r ę g iq n a ıin it ia t iv e s

Ł
EStitutiorisE ￥ ı LV

W ł T he
'

y g i w o rld T r O rg a n iz a tio n (W )O ) ib a n in te r n a tio n a l in s titu tio n w h ic h a im s a t

im p e d im e n ts . It e n s u re s th a t r u le s o f t r a d b e t w e e n n a tio n s a re a d h e re d to , s e t t le s
tra d e d is p u te q b e tw e e n c o u n trie s a s w e ll a s o rg a n is e ıra d e n e g o tia ü ô n «

ı
ts ta s k is to g o v e rn in te rn a tio n a l tra d e re la tio n s a n d its m a in a im is tra d e
ı
ib e ria lis a ü o n ł T h is c re a te d a fo ru m w ith in w h ic h in te rn a tio n a l t ra d e
'
.
äġ iërı
iėntsl
I ¡e r e ė g o t i a t e d l It is a ls o a n in s titu tio n th a t a r b itra te s tra e s ı B e g g a r th
d e d is p u ı
y
-

n e ig h b o u r tra d e p o lic ie s ,
in w h ic h c o u n trie s ra is e d ta riffs to m a in ta in th e ir o w n

iĦr e c o n o m ie s b u t a t th e e xp e n se o f th e ir n e ig h b o u rs ,
w e r e la r
ge ly b la m e d fo r th e

o 1 s p re a d o f th e d e p re s s io n a n d its d e p th A n in te r n a tio n a l o r g a n iz a tio n w a s re q u ire d

' '" o p re v e n t ' ' " ræ n c e b u t to e n c o u ra g e th e fre e flo w o f g o o d s a n d

ĺ . ŝ
s e rv ic e s . A s o f 2 6 J u n e 2 0 14 , th e w ro h a s 1 6 0 m e m b e r c o u n tr ie s _

9! ņa ı ,
T h e IM F o rig in a te d d u rin g th e W W II a s a re s u lt o f th e U N M o n e ta r y a n d F in a n c ia l

C o n fe re n c e a t B r e G iv e
E$taryţ tto n w o o d s ín u s in J u ly 1 9 4 4 . n th e ta s k

'
c h a r g e d w ith p re v e n tin g a n o th e r g lo b a l d e p re s s io n s im ila r to th a t o f t h e 19 3 0 s .

'
IM F jcib w a s to p u t ¡ń tē rń á tiö iiá l p i
s ś ü ŕ # o n c o u n trie s th a t w e re n o t co n t r i b u t i n g
'

to th e m a in te n a n c e o f g o b a l a g g re g a
j te d e m a iid .
\w h e n n e c e s s a ry it w o u ld p ro v id e
liq u id ity in th e fo rm n f ıö à ń ġ to th o s e c o u n tr ie s fa c in g a n e co n o m ic d o w n tu rn a n d

￠ u n a b le to s tim u la te a g g re g a te d e m a n d w it h th e ir o w n re s o u rc e s .

Ë ğ
'

T h e IM F w a s fo u n d e d o n th e b e lie f th a t th e re w a s a n e e d fo r z ö i r é t i l i e tlb n a tl a c

'

M e g lo b a l ıe v e ı fo ŕ e c o n o m ic ș ta b ilit) l j u s t a s th e U N h a d b e e n f o u n d e d o n th e
b e lie f th a t th e re w a s a n e e d fo r c o lle c tiv e a c tio n a t th e g lo b a l le v e l fo r p o litic a l
-

s ta b ility T h e IM F is a Ţ p u b l i n s t i t u t i o n e s ta b lis h e d w ith m o n e y p ro v id e d b y

-

* s a ro u n d th e w o rld .

H o w e v e r, o v e r t h e y e a r s s in c e it s ition , t he ı
M F ha s c h a n g e d m a rk e d ly .

F o u n d e d o n t h e b e lie f th a t m a rk e ts
'
o n e n w o rk e d b a d ly (J M K e y n e s s c ho o l o f
th o u g h t) it la te r c h a m p io n e d m a rk e t
'
,
s u p re m a c y ( M ilto n ) S o in s te a d F r ie d m a n s .

o f e n c o u ra g in g e x p a n s io n a r y e co n o m ic p o lic ie s , t h e
yp ic a lly p ro v id e s fu n d s
IM F t

■o n ly
-

if c o u n trie s e ng a g e in p o lic ie s likeTūttiñi d ė tiċ itś in iś iiiğ t å i i i ö ŕ iä is in g ł

īn te re s t ra te s d h a t le a d to a c o n tra c tio n o f th e e c o n o m y .

'

T h e W o ıl d B a n k iis a ls o k n o w n a s th e I n t e r n a t i o n a l B a n k fo r R e c o n s tru c tio n a n d

D e v e lo p m e n t ( IB R D ) . T h e o rig in a l m is s io n w a s to fin a n c e th e re b u ild in g o f E u ro p e
a n e r th e d e v Ħs ta tin n o f W o r ld W a r II T h is ro le w a s la te r e x a n d e d to in c lu d e th e
p
.

fin a n c in g o f th e a 白面 ı
ó p }ń Ë ñ f o f ċ i i ū ń t r i e in th e d e v e lo in
p g w o r ld .

w a s in it ia te d b y th e n A u s tra lia n p rim e H a w k e -

in 1989 in

Eiiċ iijiii re s p o n s e to th e g ro w in g l n te rd e p ë in d ė ń ë iiiàng A s ià - p a c if ic co no mi es . T he

pńm a ry o b je c tiv e w a s
!
to p ro m o te m ı
a n ce d , ł
n c lu s iv e s u s ta in a b le e c on o m ic i
. a n d p ro s p e rity in th e a s ia p
gw w w -
a c ific re g io n b y a c c e le ra tin g re g io n a ıe c o n o m ic
in te g ra tio n . T he firs t A P E C M i n i s t e r i a n e v e ı M e e tin g w a s h e ld in C an be m ,

A u s tra lia o n 6 7 N-
o v 8 9 .

S in c e th e n P E C h a s p ro g re s s e d fro m b e in g a ı
o o se to B e c o m e a
g r
A
, in fo r m a l
,
. v

d y n a m ic e s ta b lis h m e n t w h ic h p ro m o te s tr a d e a n d In v e s lm ė n t l i ıi à ıi ś á l i o r
・

.
á ńđ
'

:fa c iliıa ū o Ĥ ( T IL F ) a n d Ę c o n o m ic d te c h n ic a Eco

re g io n T h e C h a irm a n s h ip is ro ta te
a n ıp e r a t i o n
・
J ech )
ı in th e
. d a m o n g th e 2 1 b e rs m e m .

R n s titu t ib n
a m es ı 1 5

Ec o n o m ic s D e p a rtm e n t
 V. a . d L e c t u ıe N o te s 2 0 1
l. Te m a u o n a r E c o n o m ic s G lo b a lis a lio r

S in g a p o re v ie w s A P E C a s a r e g io n a l o r g a n is a tio n o f p re m ie r im
p o rta n c e fo r b o th
s tra te g ic a n d e c o n o m ic re a s o n s A P EC p la y s a m a jo r ro le in p ro m o tin g
.

international e xcha ng e s a n d p ro v id e s a fra m e w o rk fo r its m e m b e rs to s e e k ca -

o p e ra t io n w h ile m o d e ra tin
g d iffe re n c e s .

TÃgoiĉ iätiór s in g a p o re w a s o ne o f th e fo u n d in g m e m b e rs o f A s E A N w h e n it w a s e s ta b lis h e d

Ofäsóiinièätil in 1 9 6 7 . A s EA N w a s e s ta b lis h e d to p ro m o te p
e a ce a nd u n d e rs ta n d in
g in th e
S o u th e a
Aiiąņ ī .
st A s ia n re g io n , a s w e l l a s to T ô ś i i r i ċ t o lla b o ra tio ,
￠ iso ċ ia ıı
Į N a t iq m q þı
o g ŕe s s a nd m ı
tirra l riderstandinq To th is d a y , S in g a p o re re m a in s v e ry
c o m m itte d to th e s e c a u se s a n d c o n tin u e s to fo s te r c lo s e
(A Ë A N ) tie s w ith its A s E A N
c o u n te r p a r ts .

A n im p o rta n t th ru s t fo r fo rg in g e c o n o m ic c m p e ra tio n b e tw e e n A S E A N c o u n trie s -

is th e e s ta b lis h m e n t o f th e A S E A N F l i T i i ď ē A ie ä (A F T A ) a n d th e A S E A N
In v e s tm e n t A re a (A IA ) T h e n ș ly o b je c tiv e o f A F T A w a s to e n h a n c e A S E A N
pı
'
.
. s
.

I p o s itio n a s a c o m p e titiv e p ro d u c tio n b a s e ł e a re d to w a rd s s e rv ic in

g g th e g lo b a l
rk e t T h is w a s to b e a c h ie v e d th ro u h t h e '
】= m a k in g
.

p o s s ib le
g
b o th g re a te r
'"an sion o f in tra A S E A N d ￠ ,
'

Èp e c ia lis à tio n a n d e c o n o m
-

ie s o f s c a le l It w a s a ls o to
be a c h ie v e d th ro u g h th e in flo w o f m o re fo re ig n d ire c t in v e s tm e n t , a tt r a c te d b t h e
y

e m e rg e n c e o f a s in le A S E A N m a rk e t
g .

S in g a p o re p a rtic ip a te s a c tiv e ly in th e A S E A N E c o n o m ic M in is te rs (A E M ) M e e tin g

a n d its re la te d m e e tin g s to d ire c t A S E A N e co n o m ic c o -
o
p e ra tio n .

魯
R a m e s Iıts tit u tib n 16
与
E c o n o m ic s D e p a rtm n t

与
 ye a r 6 H c o n o m ic s L e c tu re N o te s 2 0 1 7
ł
n ł
e m a tio n a łE c o n o m

0
ic s G to b a ł
is a tio n

n d i Į F re e T ra d e m re e m e n ts & it s e « e c t s (t ra d e c r e a t io n v s d e d iv e r s io n )

B y jo in in g a Ħ A o r c u a c o u n tr w ill fin d its tra d e a u e m c h a n e , s in c e tra d e b e tw e e n m e m b e rs

,
y p g is
e n c o u ra e d th ro u b e rs is d is c o u ra g e d th ro u g h t h e
g g h lo w e rin g o f tra d e b a rrie rs , w h ile tra d e w ith in o n
-
m e m

m a in te n a n c e o f tra d
e b a r n e r s T h e re a re th u s p o s s ib le b e n e fits a s w e ll a s c o s ts o f s u c H a c h a n g e in
.

tra d e p a tte rn , w h ic h c a n b e a n a l s e d in
te rm s o f tra d e c re a tio n a n d tra d e d iv e rs io n re s e c tiv e l
y p y -

TradĠ c re a t io n ła r is e s w h e n e c o n o m ic in t e e a d s t o a T s h if t \ in t ra d e f r o m a h ig h e r« o s \
-

g ra t io n ı
P ro d u c e r t o a ıo w e r « o s m e m b e r c o u n t r y T h is s h ift re p re s e n ts a m o v e m e n t in th e d ire c t io n o f th e
\ .

ń n c ip le o f' c o m
! p a ra tiv e a d v ä n ta g q b rin g in g a b o u t w e lfa re g a in s d u e to m o re f f i c i e n t R s u rc a
o
iilı
àĠ tio n
.

'

T ła d e d iv e rs ı
o n , ta k e s f ro m a ıo w e r« o s t be r
p ıa c e w h e n e v e r th e re is a s h if t in t ra d e n o n -
m e m

c o u n t ry t o a
h i g h e r o s t m e m b e r c o u n t ry T h is is a s h ift a w a y » o m . a m o re e ffic ie n t p ro d u c e r a n d is
th u s a m o v e a w a y fro m th e r in c i le o f c o m a ra tiv e a d v a n ta e
p p p g

S u p p o s e th a t th e re e x is t t h re e c o u n tr ie s in th e w o rld B n d C W e firs t a s s u m e th a t A is th e w o rld

Ą , a .

h ig h « o s t p ro d u c e r o f a ro d u c t a c o u n try
p nd c is th e lo w e s t o s t w o rld p ro d u c e r A in itia lly p ro te c ts its
-
c .

d o m e s tic p ro d u c e rs w ith a n a d v a S
lo re m ta riĦ o f 1 o % a g a in s t a tl fo re ig n p ro d u c e rs . u p p o se th a t A w e re
to n e g o tia te a n Ħ A w ith c o u n try U
B . n d er suc h a n a rra n g e m e n t, go o d s co m in g to A » o m c o u n tr y B
w o u ld n o t b e c h a r e d a ta r iff T he ta riff w o u ld re m a in o n a n y g o o d s c o m in g fro m c o u n tr y C
g . .

: FT

c o u n tr y c

T he fo rm a tio n o f th e Ħ A m e a n s th a t n o w c o u n try A w ill s h ift t ra d e a w a y fro m c o u n tr y C , t he lo w e s t c o s t

w o rld p r o d u c e r, in fa v o u r o f c o u n tr y B , th e lo w e s k o st Ħ A m e m b e r c o u n tr y . T h is s h ift in th e pattern o f
d e fro m l o w o s t w o rld p ro d u c e rs to h i g h e r o s t F T A ( o r C U ) m e m b e rs is k n o w n a ę t ra d e d iv e r s io in l
In g e n e ra l, t r a d e d iv e rs io n is v ie w e d a s w e lfa re re d u c in g fo r th e w o r ld a s it re p re s e n ts a m o v e m e n t a w a y
fr o m th e p a tte r n o f c o m p a ra tiv e a d v a n ta g e T h e in tu itio n th in k in g fo r th is is th a t c o u n try A n o lo n g e r
.

im p o rts fro m th e c o u n try th a t h a s a ' n a t u r a ıc o m p a ra tiv e a d v a n ta g d ( i e try C ) In s te a d it h a s . .

,
c o u n .
,

a g re e d to d is c rim in a te in fa v o u r o f its fe llo w Ħ A p a rtn e r , c o u n t r y B ın th e p ro c e s s .

, r e s o u r c e s a r e

d ire c te d a w a y fro m p ro d u c tio n in th e lo w t w o rld p ro d u c e r , c o u n t r y C , a n d d i r e c t e d to w a rd s

-
c o s

p ro d u c tio n in th e h ig h e r« o s t p a rtn e r , c o u n t r y B .

T he s e c o n d e ffe c t o f th e fo rm a tio n o f th e Ħ A is th a t tra d e e x p a n d s fo r c o u n tr A

y ım p o rts ris e b e c a u s e .

c o n s u m e rs a re a b le to pa y a lo w e r p ric e fo r im p o rts T h e e x p a n s io n o f tra d e th a t re s u lts fro m Ħ A (o r

.

'

C U ) fo rm a tio n is k n o w n a s tra d e c re a tlö ń F ro m a w o rld w e lfa re p o in t o f v ie w , t r a d e c re a tio n is

g o od a s
it re p re s e n ts a m o v e m e n t in th e d ire c tio n o f th e p rin c ip le o f c o m
p a ra tiv e a d v a n ta g e , t h u s b r in g in g a bo ut
w e lfa re g a in s a ris in g fro m m o re e ffic ie n t re s o u rc e a lı o c a ljo n T h is is . tr u e be cause th e h ig h e s t c o s t

p ro d u c e r (c o u n tr y A , in th is e x a m p le ) is a v a ilin g its e lf to a g re a te r e x te n t o f th e b e n e tits a v a ila b le fro m

in te rn a tio n a l tra d e .

N o te h o w e v e r th a t in b o th c a s e s , c o n s u m e rs fr o m c o u n tr
y
A w ilt g a in s in c e th e
y a re p a y in g a lo w e r p ric e
th a n b e fo re H o w e v e r, it h a s a ls o re s u lte d in b o th tra d e c re a tio n w h ic h re p re s e n ts w e lfa re
a g a in a n d
.

tra d e d iv e rs io n w h ic h c o m e s w ith s o m e w e lfa re c o s ts .

島
冒
R a M e s In s tit u tib n 1 7
E c o n o m ic s D e p a rt m e n t
 Ye a r 6 H2conomics L e c tu re N o te s 2 0 1 7
ł
n te m a tjo n a łE c o n o m ic s G ı is a tio n
o b a ł

H e n ce , w he th e r o r n o t th e c re a tio n o f a n Ħ A is b e n e f ic ia ı to th e m e m b e r c o u n tr ie s d e pe n d s ( in th e

s ta ù c s e n s e ) o n t h e re ı
a t iv e s tr e n g th s o f th e fo rc e s o f tr a d e c re a tio n a n d tr a d e d iv e r s io n . O v e ra lı
, c o u n try
A is b e tte r o n if th e b e n e fits o f tr a d e c r e a tio n e x ce e d th e c o s ts o f tra d e d iv e r s io n , bu t th e re is n o th in g to

g u a ra n te e th a t t h is w ill o c c u r .

In g e n e ra l, th e e w e c t o f in te g ra tio n is m o re lik e ly to b e p o s itiv e

th e m o re c lo s e ıy th e p r ic e s in th e m e m b e r c o u n t rie s a p p ro a c h t h e l o i c Ġ t w o rı
d p r
jR
th e h ig h e r th e i nitia ııa riff ra td ( In th e e x tre m e , if t h e t a r i f f w e r e in it ia ll
y p
r o h ib it iv e s o th a t c o u n t r
y

)
'
A im p o rts w e re z e ro
s d b e n o w e lfa re lo s s a t a ll fro , t h e r e w o u l m tra d e d iv e rs io n .

th e m o re p ric e e la s ı y a n d d e m a n d b re in c o u n try A
ic s u p p ı
'
-
-

w h ic h tra d e c a n b e à iv e rte ä ilf ttië e n tire w o rid w e re in te g ra te d , th e re ca n o n ly e x is t tr a d e

c re a tio n ,
n o t t r a de d iv e rs io n )

T he b e n e f its o f f re e t ra d e w h ic h y o u w o u ld h a v e e x a m in e d u n d e r i n t e r n a t i o n a l tr a d e a re d e e m e d a s th e

lo n g -

te rm (d y n a m ic ) g a in s o f p re fe re n ü a l t ra d in g a r ra n g e m e n ts . ı
t is g e n e ra lı
y b e lie v e d th a t th e s e

d y n a m ic b e n e f its a re fa r m o re im p o r ta n t t h a n th e s h o rt -
te rm ( s ta t ic ) e ffe c ts o f t ra d e c re a tio n a n d t ra d e

d iv e rs io n

Pendix 4 Be n e f it s o f F T A s in S in g a p o r e

(t h is s e c tio n is a d a p te d fr o m w w w .
i e s i m a b a n d w w w . m ti \. v . s
g)

'
S in g a p o re s d e v e lo p m e nt of re g io n a l in te g ra tio n a nd g lo b a lis a tio
n in itia tiv e s is d ue to its h ig h

de pe n de nce o n i Ñ as a s m a ll a n d o p e n e c o n o m y th ig h ly d e p e n d e n t
y n o w s O f tra d è a n d in v e s tm e n t . A
o n tra d e a p o re h a s a s tro n g in te re s t in e n s u rin g th a t g lo b a l tra d e is b a s e d o n a s tro n g ru le b a s e d
S in g -

,
-

m u ltila te ra l tra d in g s y s te m w h e re g o o d s a n d s e rv ic e s c a n n o w fr Ėe ï y w ith m in im u m im p e d im e n t

S in g a p o re th u s a c tiv e ly s u p p o rts th e v a rio u s inte rna tio nal n s t i t u t i o n s a s w e ll a s re g io n a l in itia tiv e s th a t

a re c o m p le m e n ta r y to th e W o rld T ra d e O rg a n iz a tio n (W )0 ) p ro c e s s . S in g a p o re h e lp e d c re a te th e

A s s n c in tio n o f S o u th E a s t A s ia n N a tio n s (A S E A N ) a n d is a m e m b e r o f th e A s ia -
Pa c ific E c o n o m ic
C o o p e ra tio n (A P E C ) .

A F re e T ra d e A g re e m e n t (Ħ A ) is a le g a lly b in d in g a g re e m e n t b e tw e e n tw o o r m o re c o u n tr ie s ı m
ore ı im in a te b a rrie rs to tra d e (s u c h a s ta riffs , c u s t o m p ro c e d u re s , r u le s a n d r e s t r ic tio n s ) , a n d Fa .
ċ iı
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t r o s s b o rd e r m o v e m e n tp f g o o d s a n d s e rv ic e s b e tw e e n th e te rrito rie s o f th e P a rtie s .

ın S in g a p o re Ħ A s a re n e g o tia te d ,
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fa c e o f g lo b a l c o m p e titio n S in g a .
p o re s Ħ A s h a ve bee n in s tru m e n ta l in h e lp in g S in g a p o re -
ba sed
b u s in e s s e s s tre n g th e n c ro s s b o rd -
e r tra d e b y e lim in a tin g o r re d u c in g im p o rt ta r iff ra te s , p ro v id in g
p re fe re n tia l a c c e s s to s e rv ic e s s e c to rs ,
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im
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in te lle c tu a l p ro p e rty re g u la tio n s ,

a n d o
pe n in g g o v e rn m e n t p ro c u re m e n t o p p o rtu n itie s . T he re s u lta n t

re m o v a l o f tra d e b a r rie rs w o u ld re d u c e th e p ric e o f o u r e x p o rtą to a c h ie v e ċ o m p e tiü v e e d g in fo re ig n

q
m a rk e ts . T h is w o u ld th e n a llo w fo r g re a te r e x p o rt re v e n u e . Ħ As a re a ls o ne e d ed to g ra n t lo c a l
c o m p a n ie s g re a te r a c c e s s to c h e a p e r in p u ts fro m o v e r s e a s m a rk w s o a s to a llo w th e m to re ta in th e ir

c o m p e u tiv e n e s s w ith o u t re lo c a tin g th e ir p ro d u c tio n e ls e w h e re .

S in g a p o re h e lp e d c re a te th e A s s o c ia tio n o f S o u th E a s t A s ia n N a tio n s (A S E A N ) a n d is a m e m b e r o f th e

A s ia P a c ific E c o n o m ic C o o p e ra tio n (A P E C )
-
A s o f 2 0 1 4 S in g a p o re h a d s ig n e d .
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A u s tra lia p a n N e,
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n u m b e r o f re g io n a l a n d b ila te ra l Ħ A s it h a s w ith th e re s t o f th e w o rld is a s m a n y a s 2 0 .

S in g a p o re b a s e d c o m p a n ie s w ill e n jo y e x c lu s iv e b e n e lits in th e fo llo w in g a re a s

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c osta n d tim e s a v in g s
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T ra d e i n ș (S e rv ic e s C h a p te r in a n Ħ A )

Enha n c e d a c c e s s to k e y s e rv ic e s s e c to rs lik e te le c o m m u n ic a tio n s , fin a n c e a n d b u s in e s s 自

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g m a n u f a c tu rin g w o rk a b ro a d o n a la r g e s c a le B y th e 1 9 8 0 s th is w a s w e ll e s ta b li .

T h e m o v e m e n t w a s o v e rw h e lm in s hed .

g ly in o n e d ire c tio n : a w a y fro m r ic h c o u n tr ie s to la c e s w h e re w o r k e rs

w ith a d e u a te s k ills w e re m p
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U u t o Ħs h o ń n g fro m W e s t to E a s t h a s a ls o c o n trib u te d toõĎ lo s s e s in riċ h c o u n r i& i , i e s e c ia lly fo r th e

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a n d a d d s c a p a c ity in M o ro c c o to s e ll in to F ra n c e h a v e j o b s b e e n o ffs h o re d ? E s tim a te s o f th e o v e r a lt
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