Examine whether globalisation and openness to external markets have brought advantages to Singapore’s economy.
b. Examine whether globalisation and openness to external markets have brought advantages to Singapore’s economy. [15]
Introduction
Singapore is widely regarded as one of the world’s most open and globalised economies. As a small island nation with virtually no natural resources and a limited domestic market, Singapore has long depended on international trade, foreign direct investment (FDI), and the free movement of goods, services, capital, and labour to drive its economic development. Since gaining independence in 1965, Singapore’s economic rise—from a low-income country to one of the world’s wealthiest per capita—has been closely tied to its embrace of globalisation and external openness. However, this openness has not come without costs, and it is important to assess whether the overall impact has been beneficial.
Benefits of Globalisation to Singapore
One of the most significant benefits of globalisation for Singapore is access to larger markets, which allows domestic firms to exploit economies of scale. Given Singapore’s small population, local demand is insufficient to support large-scale production. By exporting goods and services to the global market, firms are able to spread their fixed costs over a larger output, reducing the average cost per unit and improving price competitiveness. Sectors such as electronics, petrochemicals, pharmaceuticals, and financial services have been able to thrive by tapping into global demand.
Globalisation has also facilitated a steady inflow of foreign direct investment (FDI), which has been instrumental in Singapore’s development. The government’s pro-business environment, political stability, and world-class infrastructure have attracted major multinational corporations (MNCs) to set up operations in Singapore. Firms such as Rolls Royce (aerospace), Lucasfilm (digital animation), and Las Vegas Sands (hospitality and tourism) have brought with them capital investment, job creation, and crucially, transfer of technology and skills to the local workforce. This has enhanced productivity and enabled the economy to move up the value chain.
Consumers in Singapore have also benefitted from greater variety and lower prices of goods and services due to international trade. Imported consumer products, ranging from Japanese electronics to European fashion and fresh Australian produce, have significantly improved the material standard of living. The increased variety of goods has also improved consumer welfare, as people are able to choose products that better meet their preferences and needs.
Another advantage of globalisation has been Singapore’s ability to tap into low-cost labour and foreign talent. The relatively open labour market has enabled firms to reduce costs of production by hiring low-skilled workers from countries such as Bangladesh, India, and China for industries like construction and cleaning. At the same time, high-skilled professionals in fields like finance, medicine, and technology have contributed to Singapore’s competitiveness and innovation capacity.
Costs of Globalisation to Singapore
Despite its advantages, globalisation has also brought several economic and social costs. One of the key issues is structural unemployment. As global competition intensified, Singapore lost its comparative advantage in low-cost manufacturing industries such as hard disk drive production in the early 2000s. As firms relocated to cheaper countries like China and Vietnam, lower-skilled workers in Singapore were displaced and struggled to find employment without retraining or upskilling.
Globalisation has also contributed to the generation of negative externalities, such as increased pollution and waste due to higher economic activity. The expansion of manufacturing and urbanisation has exerted pressure on the environment, resulting in air and water pollution, higher carbon emissions, and loss of biodiversity.
Furthermore, Singapore’s openness has placed significant stress on its physical and social infrastructure, including public transport, housing, and healthcare. The rapid influx of foreign workers and migrants—while economically beneficial—has at times led to overcrowding, rising property prices, and social tensions. In particular, housing affordability has been a persistent concern for middle- and lower-income Singaporeans.
There are also distributional consequences of globalisation. The influx of cheap low-skilled foreign labour has kept wage growth depressed for certain segments of the local workforce. While high-skilled workers have enjoyed rising incomes and job opportunities in high-value industries, the wages of low-skilled Singaporeans have stagnated or grown only modestly. This has contributed to widening income inequality and socio-economic polarisation.
Moreover, Singapore’s openness to external markets makes it vulnerable to global economic shocks. Being heavily reliant on exports and foreign investment, the country is particularly exposed during downturns in global demand or disruptions to international supply chains. Events such as the Global Financial Crisis, the US-China trade war, and the COVID-19 pandemic have shown how external shocks can lead to sharp declines in trade, investment, and employment. In addition, supply shocks overseas—such as rice shortages in Thailand or oil disruptions in the Middle East—can cause imported inflation, raising the domestic cost of living.
Conclusion
On balance, globalisation and openness to external markets have brought substantial advantages to Singapore’s economy, particularly in terms of economic growth, access to capital and technology, enhanced consumer choice, and overall improvements in standard of living. However, these benefits have not been without costs—ranging from greater vulnerability to external shocks, to rising inequality and infrastructure strain.
The key to Singapore’s relative success lies in its pragmatic approach to managing these trade-offs. The Monetary Authority of Singapore (MAS), for example, uses a modest and gradual appreciation of the Singapore dollar to dampen imported inflation. The government also implements supply-side policies to help workers retrain and stay relevant in a fast-changing economy. Finally, through progressive taxation and targeted transfers, Singapore has sought to address income inequality while maintaining global competitiveness. As such, while globalisation may pose challenges, Singapore has, so far, been largely successful in navigating them and leveraging openness as a pillar of its long-term economic strategy.
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