Singapore’s trade triumph

Max writes*

Singapore’s economic position, something relatively unimaginable one hundred years ago, results from a mixture of successful policies and critical junctures. Unlike some resource-rich states such as Saudi Arabia or Australia, “Singapore does not have leading natural resources,” which means it needs to innovate differently, “developing the service industry, trade, and tourism to boost its economy.” (Asean, 2023).

Consider Singapore’s trade liberalization, which can be described as “duty reductions in export markets but also for the removal of non-tariff barriers and behind-the-border bottlenecks” (Seshadri, 2023). After independence in 1965, Singapore pursued growth through “free trade and export promotion” (Bercuson, 1995).

For Singapore, trade liberalization meant more than just removing trade barriers; it meant committing to becoming a global leader in trade. By 1981, “ninety-six percent of all imports enter free of duty or other restrictions. There are no import quotas, variable import levies, minimum import prices, tariff quotas, or import surveillance, and the maximum ad valorem tariff rate is 5 percent” (Bercuson, 1995). This policy stimulated the Port of Singapore, creating stable employment and high revenues.

The Monetary Authority of Singapore’s management of the Singapore Dollar (SGD) created a currency that was stable against the currencies of Singapore’s trading partners, contributing to “noninflationary sustainable growth” (Bercuson, 1995). The SGD currently ranks as the sixth most stable currency worldwide.

Complementing Singapore’s trade liberalization and its strong currency, foreign and overseas investment created a powerful dynamic, with large volumes of foreign investments in the country and good returns on  overseas investments outside the country. In Singapore’s important textile market, more than 60% of output was produced by “wholly foreign-owned establishments” (Bercuson, 1995). The value of overseas investments increased from EUR 4.8 billion in 1981 to EUR 72 billion in 2023 (Bercuson, 1995; Temasek, 2023).

Whilst this growth of 6.6% per year (on average) adjusted for inflation might not seem “unbelievable,” Singapore’s steady growth in foreign direct investment, coupled with its well-managed inflation, exchange rate, and sustainable growth, reflects the nation’s impressive economic strategy. Additionally, Singapore’s diversified investment portfolio, built consistently since its inception, stands out for its ability to balance both local and foreign markets. This contrasts with Japan’s Government Pension Investment Fund, for example, which has faced periods of turmoil, experiencing four consecutive quarters of decreased value in 2023 alone.

Bottom Line: Singapore’s trade-liberalizing policies have brought strong economic benefits, both home and abroad.

* Please help my Real Donut Economics** students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice 🙂

** Why “Real”? In short, because (a) Raworth’s claims to being a “21st century economist” denies that all of her ideas were presented by others in the 20th century and (b) she presents no viable mechanisms (besides “be nice”) for achieving equality and sustainability. My students are more realistic. In long? Read this.

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

4 thoughts on “Singapore’s trade triumph”

  1. Thank you for your insightful post Max. A question I was hoping you could answer is how geopolitical tensions in the region such as the South China Sea dispute have impacted investor confidence, trade flows and Singapore’s overall economic outlook. How does it navigate such geopolitical shifts and what has it done to preserve its status as a regional trade hub?

    1. Hi Pierre, thank you for your comment. Regarding the SCS, Singapore is often seen as a “safe haven” for anything related to the movement of goods and services (particularly through maritime transport). They’re heavily engaged in multilateral trade agreements (incl. ones with China), and bring a sense of confidence/reliability into the region. This diplomacy is achieved through various channels, including Singapore’s membership as an ASEAN nation, which often helps at reducing tensions. Official Singaporean communication channels also state that China (the dominant ASEAN player and main perpetrator of any issues in the SCS) enjoys a stable relationship with Singapore, which is always helpful. Trade confidence is quite high when it comes to _most_ investments in Singapore, thanks to its _crucial_ position as a hub for transport and trade. Moreover, we know that Singapore is a “safe bet” when it comes to investments, which is why I would (perhaps boldly) claim that these issues are relatively negligible when it comes to “trusting” Singaporean investments. Thank you for your comment!

  2. Such an interesting topic Max! I think any project on rapid development should consider income redistribution and inequality. Do tax incentives play a role in Singapore’s success story? If so, how are they distributed amongst tax brackets, and do average Singaporeans benefit? It may be good to also check Gini pre and post taxes.

    Good luck on your essay, this looks very promising.

    1. Hi Clarisa, thank you for your comment. When I conducted my interview this weekend with an executive working at the Port of Singapore, he explained to me that the Singaporean “mindset” revolves less around carefully analyzing the extent to which individuals are taxed, or the extent to which income inequality persists in Singapore. He told me how, with new each generation, there is a collective agreement by Singaporeans that they are _better off_. In this sense, they care less about the exact distribution of tax burdens, and prefer to focus on metrics such as education, housing, and public services. With each new generation, Singaporeans feel that these services are more available and efficient than ever (generally speaking). TLDR: “average” Singaporeans benefit from the rise of Singapore.

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