Singapore has a well developed and flourishing free-market economy. The country has an extraordinarily corruption-free and open environment, stable prices, as well as higher GDP per capita. As a result of the free market economy, Singapore has drawn significant investments in pharmaceuticals, advanced manufacturing, and medical technology production. The services play a vital role in the development of this country’s economy. They contribute approximately 73.4% to the Singapore’s Gross Domestic Product and 83.5% of the employment (Central Intelligence Agency , 2017). Some of the top industries in Singapore include electronics, financial services, chemicals, petroleum refining, oil drilling equipment and offshore platform construction. Singapore’s top trading partners include China, Malaysia, Hong Kong, Japan, United States, Indonesia and South Korea. Furthermore, Singapore is an affiliate of the Association of Southeast Asian Nations (ASEAN), the Asia-Pacific Economic Cooperation (APEC) and the Trans-Pacific Partnership (TPP) (GlobalEDGE, 2017). Like many other countries, Singapore was affected by the global financial crisis of 2008 and 2009. The country’s economy fell into a recession in 2009 (-0.60%). Although the country’s economic growth picked up faster registering a remarkable progress of 15.24% in 2010, 2014-2016 economic growth was lower, that is, below 3% (The World Bank, 2017). Therefore, the government is trying to restructure the economy by addressing the issue of low productivity. This study explores the economic development of Singapore between 2005 and 2014. In examining the economic progress of Singapore, the report makes use of economic indicators like real GDP, unemployment, inflation and real GDP growth rate.
Real Gross Domestic Product is an economic instrument that measures the inflation adjusted market prices of commodities generated by an economy during a given period. It is a broad approximation of economic progress as well as a leading signal of economy’s health (Blanchard & Johnson, 2013). Since it is an important indicator of economic growth, the government often makes use of this measure in developing policies for the economy.
Graph 1: Data extracted from The World Bank
On the chart one above, it is clear that the real Gross Domestic Product of Singapore is rising steadily. However, the increase in this measure was slightly halted in 2008 and 2009. From 2005 to 2007, Singapore’s real GDP grew from year to year. In 2008, there was a slight increase while in 2009 there was decline due to the effects of the Great Depression.
GDP growth rate refers to annual percentage variations in the real Gross Domestic Product of an economy. The economists make use of the GDP growth rate in assessing the economic performance of a country and in comparing the economic growth of different countries. Moreover, by evaluating the GDP Growth Rate, it is possible to tell if a country’s economy is in recession or boom (Blanchard & Johnson, 2013).
Graph 2: Data extracted from The World Bank
Between 2005 and 2007, Singapore’s economic growth rate was above 7.5%. However, on the occurrence of the global financial crisis, the country registered lower growth in 2008 and finally went into recession in 2009 (- 0.60). Despite this setback, the country recorded one of the highest growths in 2010, 15.24%. From 2011 to 2014, Singapore’s growth rate has been above 3.5% (The World Bank, 2017).
Real GDP Per Capita is a gauge that shows a country’s economic output for every person. This measure is determined by apportioning the real Gross Domestic Product with the total population in an economy. The GDP per capita is used to illustrate a trend in the living standards of individuals. Additionally, the economists often make use of the real GDP per capita to relate the strength of economies across the globe (Goodwin, Nelson, & Harris, 2014).
Graph 3: Data extracted from The World Bank
Apart from 2008 and 2009, the real GDP per capita of Singapore increased gradually between 2005 and 2014. The decline in real GDP per capita in 2008-2009 resulted from the economic and financial crisis that shook the entire world. Therefore, during this period, the living standards of Singaporeans deteriorated. However, after this event, Singapore’s real GDP per capita has been increasing yearly (The World Bank, 2017).
Some of the schemes by the government of Singapore to enhance economic growth of the country can be traced back to 2010. In this year, the leadership of this country formed an Economic Strategies Committee with the view of stirring economic growth and development. The committee recommended to the government to focus on productivity-driven growth. As a result, Singapore has increased its expenditure on education and training to avail the necessary human resources. Government’s objective of enhancing education and training is also tied in its efforts to reduce the reliance on the foreign labor force (Hui, 2013).
Infrastructure plays a significant role in economic development of an economy. Better infrastructure avails the appropriate environment for the businesses to conduct their operations. The government of Singapore is continually investing in the major infrastructures such as roads, rail, bridges, and ports to create a favorable environment for the companies (PANG & LIM, 2015). Moreover, the government has put measures in place meant to enhance the capacity of small and medium-sized enterprises (SMEs). For instance, the government provides cash incentives to SMEs to carry out research and development projects (TAN & BHASKARAN, 2015). Such plans are important in establishing efficiency motivated growth and hence economic progress.
Unemployment and Typical Types of Unemployment
Unemployment refers to a situation where able and willing to work persons fails to secure work at the prevailing wage rate. Unemployment affects all countries all over the world irrespective of their economic ranking. The typical types of unemployment include frictional, cyclical and structural unemployment (Arnold, 2013). Frictional unemployment takes place when individuals leave their jobs in search of better ones or when new graduates remain unemployed for some after accomplishing their studies. Lack of perfect information in the labor market is known to worsen frictional unemployment since the unemployed are uninformed about the available job positions.
Cyclical unemployment refers to an involuntary kind of unemployment caused by inadequate demand for goods and services in an economy. This type of unemployment is also referred to as Keynesian “demand deficient” and often takes place during the economic downturn (McTaggart, Findlay, & Parkin, 2015). On the other hand, structural unemployment is caused by structural changes like the introduction of new machines in the workplace the results in skill mismatch and hence unemployment.
Types of Unemployment in Singapore
Frictional, structural and cyclical unemployment are present in Singapore. Foremost, some of the new graduates in Singapore do not secure employment immediately they accomplish their studies and thus frictional unemployment. Moreover, this unemployment occurs in Singapore when persons are moving between jobs.
Structural unemployment is also evident in Singapore, especially in the manufacturing sector. For instance, rivalry from low-cost emerging economies in the international market has made Singapore lose its competitiveness in the manufacturing industry. China’s manufacturing and India’s IT software have permanently reduced Singapore’s exports resulting in structural unemployment. Besides, Singapore has a small and open economy that is highly dependent on trade. This country is influenced significantly by external demand than internal demand. Therefore, the reliance on trade often results in cyclical unemployment when the demand is weak in the domestic and foreign market (Thangavelu, 2012).
Graph 4: Data extracted from The World Bank
Between 2005 and 2007, the unemployment in Singapore declined significantly. In 2005, Singapore’s unemployment rate was 5.59% while that of 2007 was 3.9%. It then increased in 2008 to 3.96% and 4.3% in 2009 due to the worldwide economic downturn (The World Bank, 2017). However, from 2009, unemployment has been declining steadily.
Singapore’s unemployment rate has declined significantly since the Great Depression of 2009. In 2015 and 2016, the unemployment rate stood at 1.69% and 1.83% respectively. This situation shows that the government has devised efficient schemes towards unemployment reduction. The financial support afforded to Small And Medium-sized Enterprises is playing a critical role in reducing unemployment (WILSON, 2015). The backing has facilitated the growth and expansion of SMEs and hence employment creation.
Constructive foreign direct investment policies put in place by the leadership of Singapore have also helped to curb unemployment. The policies play a crucial role in drawing foreign firms into the country availing jobs to the Singaporeans. Also, the government has established Singapore Workforce Development Agency (WDA) to avail labor market news as well as employment search services. The companies operating in this country are also required by the law to advertise job opening to the Singaporeans for two weeks before applying for overseas personnel to fill the positions (Thangavelu, 2012).
Meaning and Typical Causes of Inflation
Inflation refers to the persistent rise in the overall prices of goods and services in an economy. Inflation can result from demand-pull influences or cost-push factors. Demand-pull factors incorporate those actions that increase the amount of money in the economy. For example, increase in the wages and salaries, increase government expenditure such as transfer payments, and a reduction in the cost of borrowing. On the other, cost-push factors include those situations that increase the cost of production. An increase in the cost of labor, raw material and other critical inputs such as oil are some of the events that often result in cost-push inflation (Arnold, 2013).
Graph 5: Data extracted from The World Bank
From 2005, Singapore’s inflation rose gradually and reached a recommended rate of 2% in 2007. However, in 2008, inflation increased sharply to 6.52% and then fell sharply to 0.60% in 2009. Between 2009 and 2014, the inflation was between 1% and 5.25% (The World Bank, 2017). In 2015 and 2016, there was deflation in this country.
Inflation in Singapore results from both demand-pull and cost push factors. The decline in the cost of borrowing, increase in access to credit, and purchase of government bonds are some of the influences that cause inflation in Singapore. The rise in cost inputs among different sectors in Singapore is also known to cause inflation. In recent years, that is, 2015 and 2016, Singapore has also been affected by deflation. The deflation has resulted from weak demand for goods and services in the economy.
The government of Singapore makes use of both monetary and fiscal policies to put inflation under control. When inflation is high, contractionary policies are used. For example, the government can raise the interest rate, sell government bonds or reduce its government. During low inflation or deflation, the government employs expansionary instruments such as lowering the interest rates, increasing government expenditure or purchasing the government bonds (TAN & BHASKARAN, 2015).
Conclusion
Singapore has a well developed and flourishing free-market economy. For the past one decade, Singapore has registered remarkable economic growth apart from 2009 when the country’s economy well into a recession due to the impact of the Great Depression. Between 2005 and 2014, the highest economic growth was recorded in 2011, that is, 15.24%. Singapore is also among the nations with low levels of unemployment and inflation. In 2014, the country’s unemployment rate stood at 2.80% while inflation was 1.01%. The leadership of this country has been putting in place several schemes meant to guarantee economic growth, employment creation, and price stability. For example, the government is continually investing in essential infrastructures such as roads, rail, bridges, and ports to establish a favorable environment for the companies. Moreover, the government is enhancing the human resource by providing the necessary resources to improve the education and training. The SMEs are being supported through cash incentives in the area of research and development to enhance their growth and productivity. The government has established Singapore Workforce Development Agency (WDA) to avail labor market news as well as employment search services through efficient industry networking. Ultimately, the government makes use of both monetary and fiscal policies to ensure stable prices. When inflation is high, the government uses contractionary instruments and expansionary policies when the inflation is very low.
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