What Is International Economics - Essay Example

International Economics Overview The concept of industrialization followed by globalization has triggered the intensity of international trade practices by considerable amount. This included the exchange of goods and services between industries belonging to the same sector. Eventually with time, multiple developing nations such as Singapore have utilized the concept of International trading as an important economic development factor. The country has been importing as well as exporting multiple commodities to and from other neighbouring nations with the prime intention of sufficing the needs of the own. However, the entire practice of import and export has been subjected to multiple trade policies and regulations to maintain international harmony and restrain a control over international trade practices. Over time and under specific conditions, the structuring of the trade practices has also evolved (Davis, 1995). Considering all these aspects, this discussion focuses on analysing the type of commodities imported and exported by Singapore between the periods of 2010 to 2013 to find their alignment with the established international trade practices. The discussion emphasizes multiple crucial facts regarding the international trade practice carried out by Singapore in developing a better competitive advantage. In addition to all these, considerable amount of focus will also be laid on the tariff plans that are being imposed on the goods being imported in Singapore. Supportive facts such as worth of Singapore currency internationally will also be provided in the discussion. Discussion Question 1 A considerable amount of focus needs to be provided on the fact that majority of the goods that are being imported in Singapore are tax-free excluding some of the liquor based commodities. Moreover, by analysing the trading figures between the periods of 2010 to 2013, it can be identified that the trading pattern appears to have dropped to a certain extent during the period of 2013. The graph projected below will help to understand this difference in an appropriate manner. Fig 1: Trading Graph Fig 2: Import / Export Graph The above mentioned two graphs clearly stated about the import and the export patterns of Singapore at the present currency rate i.e. Singapore $1~ $0.80 USD. Respectively, it can be stated that the export rate within the four fiscal years have elevated, which has apparently brought in huge loads of foreign exchange in comparison to that of the imported rates regardless of the fact that the import rates have also elevated much. However, if the evaluation is conducted depending on the types of import and export commodities, then it can be stated that Singapore is a labour copious nation rather than a capital copious nation. Justification to this statement can be provided in a manner that in both cases of imports and exports, the quantity of non-oil based commodities is much higher in comparison to that of the oil based commodities. Fig 3: Graph Showing Export and Import of Oil Based Commodities Fig 4: Graph Showing Export and Import of Oil Based Commodities In context to the above discussions, much alignment can be found between the trading patterns of Singapore to that of the Heckscher–Ohlin theorem. As per this theorem, a nation gradually imports commodities, which it lacks in exports or are present in abundance. Taking this point as reference, it can be stated that Singapore is oil deprived nation lacks the support and competitive advantage of attaining a better economic stability. Despite of all these negative economic assumptions, the nation has still managed to balance this gap by appropriately exporting its non-oil based commodities. One major risk, which Singapore will have to face in relation to the rising price of fuel. This is due to the fact that the oil companies raise the unit prices of the exported oil, which will raise difficulties for Singapore to maintain stability within its economy (Davis, 1995). In addition, the non-oil based commodities are imported and exported from Singapore can be evaluated based on the intra industrial trade model. The graphical plot provided below will help understand this aspect in a much effective manner. Fig 5: Graph Showing the Export and Import of Machinery and Transport Equipment Based on the analysis of the above graph, it can be recognised that Singapore has a competitive advantage in terms of possessing better technological capabilities in comparison to that of the nations with which it performs trade practices. The country exports larger quantity of machineries rather than importing it. Thus in such cases, Singapore will have the option of exporting its machineries at a higher price and thus, sufficing the losses that it undertakes as a result of oil import. Due to the superior quality of machinery goods, other nations may find it convenient to purchase it rather than heavily investing in the research work (Davis, 1995). Alignment of International Trade with Product Life Cycle Theory The alignment of the international trade with that of the product life cycle can be elaborated with the help of technological and machinery commodities imported to and exported from Singapore in the domain of transport, business management and travel services. Taking consideration of the above provided diagram, the elaboration starts at the product development phase where a new product is introduced in the market and thus, imported or exported in an associated manner. Once the importing nation attains the new product, it evaluates and associatively imitates such product for eliminating the requirement of importing further more products of the same kind. In this regard, Singapore is identified to improve insurance services as well as intellectual property with the assistance of which services and/or products that are imported from partner countries are developed with the country itself. This phase can be categorized under the growth phase. Once the imitated product passes all the quality checks, it is produced in massive quantities to suffice the existing market needs. This phase can be termed as the maturity phase, where the trading activities enhanced largely relating to services and oil as well as non-oil products. Eventually with time, the focus and demand of customers for that product diminishes and demand for a new product or services type emerges with the development of better insurance services and intellectual property. Thus, the product life cycle continues in a cyclical fashion and finds major alignment with the concept of international trade practices that are practiced in Singapore (Department of Statistics, 2012; Davis, 1995). Question 2 PFT - Free Trade Equilibrium DFT – Domestic Demand SFT – Domestic Supply DFT - SFT – Import Differences Tariff Welfare Effects on Singapore Source: (Suranovic, 2012) (a). In context to the imposition of tariff on the import of alcoholic beverages i.e. beer within Singapore, it can be stated that in a direct or indirect manner, the imposition will bring down the welfare of Singapore by significant amount. Justification to this statement can be provided depending on the fact that if the Singapore government starts imposing tariff on the import of beer, then it will also increase the domestic prices of such products with similar tariff rates. The relationship can be elaborated in a manner that the nation suffices its total domestic demand by obtaining supply from both domestic producers and international imports (Suranovic, 2012). Tariff is imposed with the aim of accomplishing equilibrium in supply and demand of beer. Thus, in order to attain a balance, the government generally increases the tariff rate imposed on such products for sufficing demand. In this respect, the cost and benefits of the government, producer and consumer are identified on the basis of consumer and producer surplus. In an associated manner, the profitability ratio of the government (C) and the domestic producers (A) are most likely to increase who are the gainers. However, the customers will be forced to pay more than the actual price of the product who are the losers (A+B+C+D) as depicted in the above diagram and chart. Considering all these aspects, it can be ascertained that the consumer welfare is likely to decrease in case the government intends towards imposing high rates of tariff on the import of beer (Suranovic, 2012). (b). Despite of the fact that imposition of tariff on beer may hamper the economic welfare of Singapore, the government is still identified to impose tariff on beer. Justification to this aspect can be provided by taking consideration of the fact that increasing the tariff rate on imported beer will simultaneously help the government and the domestic producers in terms of attaining high amount of profits. With the increase in tariff rates, the domestic price of beer will increase and the customers will be forced to pay much more that the initial rates. In this regard, tariff is imposed by Singapore on the import of beer for having equilibrium in terms of demand and supply (Suranovic, 2012; WSU, n.d.). Question 3 (a). Singapore has always been considered as a leading nation in the areas of technological advancement. This factor can be considered as one of the crucial reasons as to why the worth of Singapore currency is more in comparison to that of the other major trading partners. The nation has been exporting huge amount of technological equipment to major import partners at higher rates. This in the long term has brought in appreciable amount of foreign exchange within the nation and subsequently, contributed to the continued development of Singapore’s economy. In a cause and effect relationship, the international worth of Singapore currency has attained high value as compared to US dollar, Japanese Yen and Euro (Monetary Authority of Singapore, 2001). (b). In addition to the above context, the nation also appears to have maintained a floating exchange rate system depending on the type of commodity and the nation from which it is importing. The same technique is followed in case of the export. Justification for this system can be provided depending on the fact that the economy relies heavily on the foreign exchange import. Thus, it becomes a mandate for Singapore to continue trade practices with the importers or the exporters at exchange rates that ensures effective business (Monetary Authority of Singapore, 2001). For instance, if Malaysia, one of the pronounced trading partners of Singapore negotiates on providing goods at higher foreign exchange rate, then Singapore will have to agree by considering the fact that the goods imported are of high demand and cannot be manufactured in Singapore. The same may happen in case Singapore exporting certain crucial goods, which are in high demand in the world market and thus, can keep its exchange rate pretty high. Question 4 (a). Taking into consideration of the surplus factor in the payment balance, an economy may eventually start investing in the education and industrial development sector. One of the most important economic goals of a country is balance between internal balance and external balance. Internal balance implies minimum rate of unemployment in an economy. In this regard, countries are identified to use different policy instruments that include direct control, expenditure-changing policies and expenditure-switching policies. Expenditure-changing policies comprise monetary along with fiscal policies for mitigating the issues related to unemployment. Based on monetary policy, a country improves money supply by lowering interest rates. In this respect, investment, trade and income increases. It may even place employment opportunity for the unemployed population at lower wage payment. On the other hand, government with the assistance of fiscal policy change taxes and government expenditures. In that manner, the economy will be contributing to the educational as well as the technological development. The development in the education sector will aid the people in developing their competency level, so that they have adequate knowledge and required skills for performing different operations. In a similar context, the development of the technological sector would lead toward the industrial growth, which in turn would provide many opportunities for employment. In an additive manner, it will also be supporting the unemployed population rates to a large extent (InterNations GmbH, 2014). (b). In contrary to the internal balance, the external economic balance may be hampered by a certain extent due to the higher percentage of unemployed population. However, an economy may contribute certain portion of unemployed population to the markets of other nations through certain government-established agreements. In this manner, the government will be earning appreciable amount of foreign currency flow as tax for its skilled labour support (InterNations GmbH, 2014). Moreover, due to the increase in the percentage of unemployed population, the per capita income of an economy will also gradually decrease. In an associated manner, the fund liquidity within the economy will simultaneous come down making it difficult for the government of such economy to practice international trade practices successfully (InterNations GmbH, 2014). References alcoholrehab.com. (2014). Alcoholism in Singapore. Retrieved from http://alcoholrehab.com/alcoholism/alcoholism-in-singapore/ Davis, D. R. (1995). Intra-industry trade: A Heckscher-Ohlin-Ricardo approach. Journal of International Economics, 201-226. Department of Statistics. (2012). Singapore’s International Trade in Services. Retrieved from http://www.singstat.gov.sg/publications/publications_and_papers/international_accounts/int-trade2012.pdf InterNations GmbH. (2014). The Economy of Singapore. Retrieved from http://www.internations.org/singapore-expats/guide/16061-economy-finance/the-economy-of-singapore-16045 Monetary Authority of Singapore. (2001). Singapore’s Exchange Rate Policy. Introduction, 1-19. Suranovic, S. M. (2012). Welfare Effects of a Tariff: Small Country. Retrieved from http://internationalecon.com/Trade/Tch90/T90-11.php WSU, n.d. Tariffs. Retrieved from http://public.wsu.edu/~hallagan/EconS327/weeks/week4/Tariff.pdf Read More