Chapter 9, How can we respond to economic impacts of Globalisation?

Question 1

How can countries participate in global economy

Answer 1

1. International Trade
2. International Investments

Question 2

International trade

Answer 2

• Countries can participate in the global economy mainly through international trade, where they buy and sell goods and services with each other.
• Countries may trade in goods, such as food and appliances, while others may also buy and sell services, such as finance and education.
• For example, Switzerland is a country that specialises in banking and financial services, while China is a manufacturing hub.
• Countries trade with each other because they may need or want goods and services that they are unable to produce themselves or when produced by other countries, are cheaper or of better quality.
• This can improve their economic competitiveness, which can be affected by the availability and quality of infrastructure, and technology, costs and skill levels of labour, and degree of political stability.

Question 3

International Investment

Answer 3

• Business from one country may set up their operations in another country, or invest in business of another country.
• Known as foreign direct investments (FDIs), they are typically for the long term.
• When a country receives foreign direct investments, it often results in an inflow of foreign equipment, talent and expertise.
• This enables local business to upgrade their technology and business practices.
• FDIs benefit a country by helping to increase the amount of goods and services produced locally.
• They also promote the transfer of skills and expertise to local business and workers and creating jobs with potentially higher wages.
• This can also lead to increased economic competitiveness.

Question 4

Economic Impact of Globalisation on Countries

Answer 4

1. Economic Growth
2. Economic Vulnerability

Question 5

Economic Growth

Answer 5

• Economic growth is the increase in a country’s production of goods and services. This can be measured using a country’s gross domestic product (GDP) over a period of time.
• As countries participate in the global economy through international trade, this enables their goods and services to reach a larger market. This means that a country’s goods and services can now be sold not just locally but also to other countries. Thus, countries will increase their production of goods and services to meet the larger market demand.
• Countries can also experience economic growth because of foreign investments, which brings in capital and advanced technology. Foreign capital can be used to build production facilities, while advanced technology helps to raise the productivity of businesses and workers.

Question 6

Example of Economic Growth (SG)

Answer 6

• For example, with labour costs and limited natural resources to support for its own consumption, Singapore is highly dependent on the global economy for many goods and services. At the same time, it offers the world goods and services that it is good at producing.
• Singapore continues to attract FDIs with major sources from China, Japan and the United States. Singapore serves as a gateway to the fast-growing Southeast Asian region. By 2018, 59% of the total number of technologies based MNCs in Asia had established regional headquarters in Singapore. FDI received by Singapore grew from $665 billion in 2010 to $2479 billion in 2021.
• Singapore also invests overseas with significant investments in China, India and Indonesia. As these countries have larger populations and greater potential economic growth, investing in them will likely bring economic growth to Singapore. Singapore’s FDI aboard grew from $427 billion in 2010 to $1251 billion in 2021.
• Given its small domestic market, Singapore encourages foreign investments and invests in other countries to remain competitive in the global economy.
• The trading of goods and services, and foreign investments have helped Singapore’s GDP to grow from $2157 million in 1960s to $643,546 million in 2022.

Question 7

SG’s participation in Global Economy (1965 — early 1970s)

Answer 7

• After gaining independence in 1965, Singapore faced a high unemployment rate.
• In response, the government sought to attract investments particularly in the labour intensive industries (such as garment manufacturing and shipbuilding).
• By the end of the 1960s to early 1970s, Singapore enjoyed strong economic growth growth. Singaporeans had more jobs and economic growth.

Question 8

SG’s participation in Global Economy (1970s)

Answer 8

• Higher wages led to higher labour costs. Singapore became less competitive in labour intensive industries compared to neighbouring countries with more labour and at cheaper costs.
• Singapore thus began attracting new foreign investments in higher value industries (such as petrochemicals and engineering).
• Singapore also focused on upskilling its citizens to develop a more educated workforce.

Question 9

SG’s participation in Global Economy (1980s — 2000s)

Answer 9

• Singapore reviewed its economic strategy to ensure sustained growth.
• The government reviewed its economic strategy to ensure economic growth.
• The government focused on pursuing more trade, overseas investment and developing its modern service sectors (such as finance and info-communications).
• Active efforts were made to attract MNCs to set up their operations in Singapore.

Question 10

Economic vulnerability

Answer 10

• Interconnections and interdependent relationships in a global economy can make countries vulnerable as what happens in one country can affect other countries.
• For example, the Russian-Ukraine crisis in 2022 cause the flow of goods across the world to be disrupted. This was worsen by sanctions imposed by many countries on Russia that restrict capital flows and travel with the country.
• Russia is the world’s largest exporter of wheat, and Ukraine is often known as Europe’s breadbasket.
• A prolonged conflict will continue to threaten global energy safety. Europe, highly dependent on Russian energy exports is already suffering the most.
• The ban on Russia’s energy exports has led to soaring energy prices and high inflation, causing unexpected suffering in people’s lives.

Question 11

Economic impact on individuals

Answer 11

1. Economic opportunities
2. Employment challenges experienced by individuals

Question 12

Economic opportunities

Answer 12

• When a country is open to the global economy, businesses can reach a larger market, resulting in higher demand for goods and services from the country.
• The presence of MNCs and increased investments like FDIs also encouraged the use of more advanced technologies, which lead to the creation of jobs involving higher skills and wages.
• For example, during COVID-19 in 2020, online shopping grew rapidly as shops are closed. Amazon, an international e-commence company, has added 427,300 employees between January and October in its headquarters in Seattle and countries such as India and Italy. This pushed its workforce to more than 1.2 million people globally.
• For example, Old Chang Kee, a local snack chain expanded their business to UK and Perth.
• This allows their business to reach a larger market, resulting in higher demand for goods and services from the country.
• This in turn creates more jobs and provides a livelihood for individuals in the country.

Question 13

Employment challenges experienced by individuals

Answer 13

• MNCs may relocate their operations to other countries to save costs or access expertise available elsewhere.
• For example, Amazon started laying off employees in its cloud services division as part of a retrenchment exercise that is expected to affect 9000 employees in April 2023, including its Singapore office. Many units in Amazon had expanded their manpower rapidly during the pandemic due to higher demand for digital services, but growth has since slowed.
• When this happens, individuals who are employed in these operations may lose their jobs. They will then suffer a lower standard of living.
• Advancement in technology may cause some types of jobs to be automated as machines are increasingly used to perform work. Thus, individuals working in these types of jobs may lose their jobs.
• With a greater movement of labour as individuals relocate to work in other countries, local workers in those countries may face greater competition from foreign labour in the job market.

Question 14

Responses to economic impacts

Answer 14

1. Government Support
2. Acquisition of knowledge and skills by individuals

Question 15

Government support

Answer 15

• Economies are interconnected and interdependent in a globalised world.
• This is because countries reap the benefits of globalisation by participating through international trade and investment.
• In doing so, countries may be vulnerable to external events such as pandemics.
• Countries can respond to these opportunities and challenges through:
  1. Economic cooperation
  2. Attracting and making foreign investments
  3. Financial support
  4. Development of Expertise

Question 16

Economic Cooperation

Answer 16

• Countries can choose to cooperate with other countries by pursuing policies that promote free trade.
• This form of economic cooperation can be achieved by signing free trade agreements (FTAs), which refer to treaties between 2 or more economies to make trade and investment between them easier.
• FTAs typically agree to reduce or remove tariffs between countries to allow foreign imports and exports to be traded more freely and at lower costs.
• One example is bilateral FTAs like Singapore-Australia FTA. This agreement came into force in 2003 and underwent revisions between 2006 and 2020. Under this agreement, tariffs on all imported goods are removed. The number of Australian universities whose law degrees are recognized in Singapore increased from 4 to 8. The period of stay granted to business visitors between Singapore and Australia increased from 1 to 3 months.

Question 17

Attracting and making foreign investments

Answer 17

• Countries may also respond to the economic impacts of globalisation by attracting and making foreign investments.
• The Monetary Authority of Singapore (MAS), Singapore’s Central Bank ensures low and stable inflation in Singapore, which helps attracts foreign investors. It also manages and invests the country’s foreign reserves, namely foreign currencies accumulated from international trade and investment. The MAS manage and invest Singapore’s national reserves which are worth hundreds of billions of dollars. By IIensuring low and stable inflation, MAS ensures that the prices of goods and services do not rise rapidly. This is to ensure that Singapore remains an attractive place to invest in.**

Question 18

Financial Support

Answer 18

• Financial support from the government cushions the negative economic impacts on various sectors in the short term.
• For example, COVID-19 highlighted the economic vulnerability of countries as they closed their borders to curb the spread of the virus.
• Sectors such as transport and tourism were directly affected, while other sectors, such as manufacturing and retail, were indirectly affected.
• The Singapore government responded to cushion the economic impact of the COVID-19 crisis by providing financial support for Singaporeans and local businesses.
• For example, $4 billion of Stabilization and Support Package was given to support affected workers and firms with defrayed costs for aviation sector and property tax rebate for tourism sector.
• For example, $1.6 billion of Care and Support Package was given to support Singaporeans families with $100 supermarket vouchers for the lower income, and up to $300 cash for adult Singaporeans.
• The Singapore government launched various forms of government support as part of 2020 Singapore Budget in response to COVID-19 crisis. Cash flow support helped lower income Singaporeans by providing cash to meet their immediate needs. Sectors like aviation and tourism received more support due to the severe economic impacts on these industries.

Question 19

Development of expertise

Answer 19

• Government agencies can be set up to provide resources and advice to help businesses innovate, develop their expertise and talent, and even expand aboard.
• In the long run, this enables businesses to adapt or transform their operations to become more resilient to the disruptions and economic vulnerabilities brought about by globalisation.
• For example, in 2017, the small and medium enterprises (SMEs) Go Digital Programme was launched.
• This would enable them to seize growth opportunities in an increasingly digital global economy.
• As of March 2022, more than 80,000 SMEs have adopted digital solutions through the programme.
• For example, When COVID-19 hit, SME owner Mrs Lily Loh found it hard to sell her products.
• Her usual sales channels such as physical venues were suspended due to Safe Management Measures. She turn to GO Digital programme and learn to digitalise her business operations to increase productivity and boost efficiency.
• Through the programme, she was able to expand her home based business selling premium ikan bilis powder into a full scale factory catering to customers from Singapore and overseas.

Question 20

Acquisition of knowledge and skills by individuals

Answer 20

• Individuals who are digitally savvy and/or possess sought after skills may be able to get more job opportunities locally and overseas, and perhaps get a higher paying job.
• However, individuals may find themselves competing with foreign labour. They may also risk their jobs when MNCs relocate their operations to other countries, or when the individuals do not possess the relevant skills required in the increasingly digitalised economy.
• Individuals can respond by being willing to acquire new knowledge and skills throughout their life and remain relevant in the job market.
• This is vital in a world of rapid technological advancements, where the current jobs are evolving, and new jobs are being created.
• For example, individuals can go to the SkillsFuture portal to find out if there are courses that they can enroll to pick up new skills.
• With more skills at hand, it will give them more job options and help them stay relevant in their jobs.