Export competitiveness in the context of Singapore

• Main Authors: Chew, Kheng Lee, Phua, Chin Tiong, Yau, Puay Hiang
• Other Authors: Nanyang Business School
• Format: Final Year Project
• Language: English
• Published: 2014
• Subjects: DRNTU::Business
• Online Access: http://hdl.handle.net/10356/55698
• Institution: Nanyang Technological University

Singapore has a total trade three times its GDP. This signifies the openness of her economy and the importance of her external trade. It is also a re-export oriented economy. She imports more than she exports. Her adoption of a currency appreciation policy as an anti-inflation tool also seems to run contrary to the dictum that devaluation is a sure way to improve a nation's competitiveness. Amid such an economic uniqueness, it is interesting to test the applicability of competitiveness-models developed in the western countries. The paper is set in such a direction. With a fine-tuning to existing chosen model, we shall see whether the model adequately captures the competitiveness of the Singapore's export sector. The paper has set its sight on using the q-model as a measure of Singapore's export competitiveness and the real exports to vindicate the appropriateness of such a measure. The q-model is basically a measure of relative price levels of which nominal exchange rate is quoted in the number of Singdollars for one foreign currency. One unit of foreign currency is deflated by its Consumer Price Index. Its Singdollar equivalent is then deflated by its Wholesale Price Index. The domestic figure is then divided by the foreign figure to yield the ratio q. A higher figure would signifies a more competitive Singapore exports as compared to the foreign partner in question. A correlation between q and real exports is also conducted to test whether the q-model adequately captures the export-competitiveness of Singapore. If it does, Singapore's future direction can be forecasted and efforts can be channeled in that direction to improve Singapore's position. The paper has conducted its in-depth analysis on Singapore and her three major trading partners namely United States, Malaysia and Japan. In the case of United States and Japan, a significantly positive relation between q and real exports was obtained. A dismay negative relation was however obtained for Malaysia. The Malaysia's case has pointed out that the trade between Singapore and Malaysia is demand derived. But on a Singapore-World basis, a heartening positive relation was obtained. The general policy implications are that the Singapore authority should concentrate on containing its inflation rate via controlling WPI to a favorable level, and adopt an appropriate exchange rate policy. Our analysis have also highlighted the effectiveness of Singapore's currency appreciation policy in complementing Singapore's export competitiveness. In an analysis conducted on United States, Malaysia, Japan, Thailand and Hong Kong, we have vindicated that Singapore's nominal exchange rates enjoyed a negative relation with relative price levels. This means that a currency appreciation policy (decline in nominal exchange rate) is appropriate as long as the relative price level is able to steer Singapore's exports to a more favorable position. The results obtained have prompted the following prescriptions for Singapore in order to maintain and henceforth improve her export-competitiveness. Firstly, the Singapore authority must curb her inflation rate by capping the WPI to an appropriate level. She can focus her sight on productivity, wage restraint and cut down the cost of production via shifting production capacity to countries of lower unit labour cost. Secondly, she can continue to adopt a gradual currency appreciation policy that would not erode export-competitiveness. Thirdly, she can glimpse at other factors not captured by the q-model. She may diversifY her export markets, implement alluring tax reliefs and incentive schemes to exporters, improve quality of goods exported, and undertake diplomatic tactics such as lobbying for the removal of trade barriers or foster better ties with her trading partners. A trending conducted an a Singapore-World basis postulates that if the first two prescriptions are zealously undertake, the future of Singapore's export-competitiveness will reach new heights. To conclude, the q-model works reasonably well in a Singapore scenario and that Singapore's export competitiveness can be sustain in the future._Results have also shown that appreciation can be an unconventional way to enhance competitiveness. This dictum probably exists only in the Singapore context. Last but not least, we must bear in mind that Singapore is only a small economy. Demand is given and it is important to Singapore. As such it is very important for Singapore to depend less on her major trading partners.