(2019) A Level H2 Econs Paper 2 Essay Q5

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5. There is potential for governments to achieve both inclusive growth and sustainable growth.

(a) Explain what is meant by inclusive growth and sustainable growth. [10]

Inclusive growth 

1. Inclusive growth refers to equitable opportunities for economic participants during economic growth 

2. It is achieved when the benefits of economic growth are shared and enjoyed between different sections of society 

3. A country is likely to have inclusive growth if there is an increase in real GDP growth and median wages tracks closely to the increase in real GDP growth. At the same time, GINI coefficient which measures income inequality should also be narrowing. 

4. Countries like Singapore are currently focused on achieving inclusive growth. 

Sustainable growth 

1. Sustainable growth refers to a rate of economic growth that can be maintained without causing other significant economic problems or trade-offs. 

2. Sustainable growth is said to be achieved if a country is able to continuously achieve growth and yet 

   • Income inequality does not worsen 

   • There is no increased environmental degradation 

   • The country does not incur significant debt levels which imposes on future generations 

   • There is no significant inflation 

3. Countries like China are presently focused on achieving growth that is sustainable.

(b) Discuss the extent to which it is possible for a small, open economy such as Singapore to achieve both inclusive growth and sustainable growth. [15]

Why it might be difficult for a small and open economy such as Singapore to achieve both inclusive and sustainable growth 

Difficult to achieve inclusive growth 

1. The nature of our small and open economy pushes us to be heavily dependent on trade 

2. As a result, there is an urgent need to keep our exports competitive to keep our economy growing via an increase in (X-M) 

3. One key method to keep production costs low is to import cheap low-cost foreign labour 

4. Inflow of low-skilled foreign labour will increase the supply of low-skilled labour 

5. This depresses the wages of low-skilled labour / keeps it low 

6. As the economy grows, wages of high-income earners increase while wages of low skilled, low-income workers remain stagnant – causing income inequality to worsen 

7. This makes it difficult for a country like Singapore to achieve inclusive growth 

Difficult to achieve sustainable growth 

1. It is also difficult for small and open economies like Singapore to keep environmental degradation low such as reducing carbon emissions 

2. This is because implementing policies such as carbon taxes or carbon credits can be pretty limiting for countries like Singapore due to the problem of carbon leakage (firms will just simply bring their pollution and production elsewhere) 

Why it is possible for us to achieve inclusive & sustainable growth 

How Singapore achieves inclusive growth 

1. Small and open economies can attempt to reduce their reliance on cheap low-skilled foreign labour for growth (influx of labour helps to shift LRAS to the right, and keeps COP low) 

2. To reduce the reliance on cheap low-skilled labour, the government, like in the case of Singapore, can choose to focus on using supply-side policies to increase the skills of the lower-income groups through increasing spending on education and skills-upgrading programmes 

3. As skills of low-skilled workers increase, wages also correspondingly go up, reducing income inequality 

4. At the same time, the government can implement a progressive personal income tax system and provide transfer payments to the lower income groups through heavy subsidies on merit goods such as education & healthcare. 

5. This will ensure that growth remains inclusive. 

6. Given that these measures have been put in place in Singapore, and income inequality is the lowest it has been in a decade, it does show that it is possible for small and open economies to achieve inclusive growth 

How Singapore achieves sustainable growth 

1. Our prudent fiscal policy ensures that 

   • There is no excessive increase in G causing excessive increase in AD leading to significant demand-pull inflation 

   • We do not incur significant budget deficits causing huge debts 

   • We are able to plan spending of $100 billion over the next few decades to address the impacts of climate change 

2. This shows that we are able to achieve sustainable growth 

Conclusion 

• The small and open nature of economies like Singapore makes it difficult to achieve inclusive and sustainable growth, but yet with the right approaches, it is possible. 

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