Qn 16 International Economy (FTA)

Prelim Revision

RI 2009 Prelims

International Economics Term 3 Revision Question 16

Prelim Revision

International Economics RI 2009 Prelims

“Singapore’s network of Free Trade Agreements has expanded to cover 13 regional and bilateral FTAs with 23 trading partners, including countries such as the US, China, India and Japan. FTAs

have been instrumental in helping Singapore based businesses strengthen cross-border trade eliminating or reducing import tariff rates and easing investment rules.”

Discuss the extent to which Singapore’s network of FTAs will

help to achieve her macroeconomic objectives. [25]

TYPE of QUESTION: Linking International Economics and Trade policies to macroeconomic objectives.

Prelim Revision


“Singapore’s network of Free Trade Agreements has expanded to cover 13 regional and bilateral FTAs with 23 trading partners, including countries such as the US, China, India and Japan. FTAs have been instrumental in helping Singapore based businesses strengthen cross-border trade eliminating or reducing import tariff rates and easing investment rules.”

Discuss the extent to which Singapore’s network of FTAs will help to achieve her macroeconomic objectives. [25]

Analysing the Preamble: Recognise that this Network of FTAs affects - Trade flow - Capital flow - Labour flow

Instrumental to SG - Why is FTA so

important for SG? - Link to nature of SG

economy - Any costs?

Analysing the Question:

Discuss the EXTENT -to judge the extent, you need to make comparisons across the 4 Macro objectives


Command Content Context

Discuss the extent: Provide alternative perspective(s) to the stated issue. Places emphasis on more than just having a two sided discussion but also to show the limit to which an argument has validity and include the particular degree to which the issue is believed to be the case . To also include a reasoned conclusion.

FTA – how it works, pros & cons. Go beyond trade flows to include capital & labour flows as well. Macroeconomic objectives – To bring in the 4 macroeconomic objectives.

Singapore – To recognize her unique characteristics Requires a general understanding of SG’s relationship with the rest of the world

Approach

Use of TAS to bring out the advantages and disadvantages of using FTAs to achieve the various macroeconomic objectives set in the context of Singapore. Synthesis requires a deliberate stance on whether the use of such a network will benefit SG in the long run.

Prelim Revision

CCCA

Outline

ACCA

Examiners comments

Detailed Answer

Prelim Revision Thesis 1: FTAs can help SG achieve her macroeconomic objectives via Trade Anti-thesis 1: FTAs cannot help SG achieve her objectives via Trade Thesis 2: FTAs can help SG achieve her macroeconomic objectives via Labour flows Anti-thesis 2: FTAs cannot help SG achieve her objectives via Labour flows Thesis 3: FTAs can help SG achieve her macroeconomic objectives via Capital flows Anti-thesis 3: FTAs cannot help SG achieve her objectives via Capital flows Anti-thesis 4: Other factors can help SG achieve her macroeconomic objectives Synthesis: Make a stand as to what extent will FTA benefit SG in achieving her macroeonomic objectives.

Structure of Essay

Addressing question requirements

Content Development

Contextualisation


Argument development

Hint: It may look intimating to have so many sections, however this helps to structure your points. Thesis 2 and 3 need not be explained in great details.

Prelim Revision

Introduction *Nature of Singapore Economy, *Meaning of FTAs *Importance of FTAs to SG *List out the macro objectives Body Paragraph 1/2: Will FTAs help to achieve the objectives via free trade? YES ; NO Paragraph 3/4: Will FTAs help to achieve the objectives via free capital flow? YES; NO Paragraph 5/6: Will FTAs help to achieve the objectives via free labour flow? YES; NO Paragraph 7: What other factors are required to decide the net benefits/harms from FTAs? (*Some other policies that will maximise the benefits?) Conclusion

Essay flow


Content Development

Contextualisation


**You may use the AD/AS diagrams to explain the benefits/costs of FTAs


Prelim Revision Body Paragraph 1 P: FTAs will help to achieve SG’s objectives via free movement of trade E/E: Explain how free trade is achieved via FTAs and how that is beneficial -FTAs will lead to elimination of tariffs and other barriers that restrict exports/imports by making them expensive. -As Sg’s export revenue increases, there will be an increase the AD and hence a rise in real income via the multiplier process. As Sg is an economy highly dependent on exports, the rise in economic activity in the export sector will increase demand for labour and lower unemployment -Current account of Sg will also improve and the rising demand for SGD will make the currency stronger -the FTAs will also enable Sg to explore cheaper source of imported raw materials which are crucial to Sg’s economy due to the limited domestic resource capacity. Cheaper resources will lower the C.o.P and will make businesses more profitable L: However, the rise in exports and imports may not necessarily be beneficial


Content Development

Contextualisation


FTAs will lead to both rise in exports and imports 1) Use AD/AS analysis

to link to impact of prices, national income & unemployment

2) Use current account balance to link to BOP


Prelim Revision Body Paragraph 2 P: FTAs will not always help to achieve Sg’s objectives via free movement of trade E/E: Explain how free trade is not beneficial -the over-reliance on exports will make Sg’s economic growth vulnerable to the economic performance of the trading partners. Also, the rapid growth of trading partners will lead to fast rise in demand for Sg’s exports (normal goods) and thus AD, which may lead to demand pull inflation in Sg. -the rise in imports may worsen the current account balance and also make Sg vulnerable to imported inflation -consumption of imports may be harmful for the growth of the domestic industries and thus, be a threat to the future capacity of the economy L: Thus, to what extent Sg benefits from free trade (through FTAs) will depend on various other factors (influenced by Sg policies) that determine the net effects on (X-M)


Content Development

Contextualisation



Prelim Revision Body Paragraph 3 P: FTAs will help to achieve Sg’s objectives via free movement of capital E/E: Explain how free capital flow is achieved and how that is beneficial -free capital movement is allowed by removing ownership restrictions and restrictions on movement of funds. Attractive tax regime aids to further facilitate this movement -free movement of capital will allow for greater funds in Sg and increases Investments (for example, FDIs of many MNCs in Sg). This leads to rise in AD and brings about actual economic growth in Sg. The investments may also help to build the capacity and thus, aid in potential growth -the rise in economic activity will increase the demand for labour and lower UnN -it also helps to improve the financial account and strengthens Sg’s currency L: However, the free movement of capital may not necessarily bring about benefits to Sg.


Content Development

Contextualisation


FTAs will lead to both rise inflow and outflow of capital 1) Use AD/AS analysis to link to impact of prices, national income & unemployment 2) Use finanacial account balance to link to BOP


Prelim Revision Body Paragraph 4 P: FTAs will not always help to achieve Sg’s objectives via free movement of capital E/E: Explain how free capital flow is not beneficial -too much FDI inflow may lead to demand pull inflation in the short run in Sg. At the same time, it will make Sg’s performance dependent on the foreign investments. -the strengthening of SGD may hurt Sg’s export sector as exports will lose competitiveness in terms of foreign currency. This will be harmful for Sg, an economy predominantly dependent on trade. -Foreign investments may crowd out local potential investors who may not be able to compete with established MNCs already reaping IEOS -the outflow of FDI from Sg may worsen Sg’s financial account in the short run L: Although there are disadvantages from free capital flow, Sg’s small domestic investment size makes it important to be open to foreign capital. Thus, good policies (‘other factors’) are required to maximise the gains


Content Development

Contextualisation



Prelim Revision Body Paragraph 5 P: FTAs will help to achieve Sg’s objectives via free movement of labour E/E: Explain how free labour flow is achieved and how that is beneficial -free movement of foreign labour to Sg helps to overcome the resource constraints by increasing the quantity of labour-both skilled and unskilled. This helps to increase AS of Sg and achieve economic growth. -the labour flow will also help to lower the c.o.p especially in the sectors which are labour intensive, for example, construction sector. Whereas, the skilled labour will help to improve the knowledge and technology intensive industries, for example, Banking and Finance. L: Thus, there will be overall growth in the availability of resources. But, there may be potential threats too.


Content Development

Contextualisation


FTAs will lead to both rise inflow and outflow of labour 1) Use AD/AS analysis

to link to impact of prices, national income & unemployment


Prelim Revision Body Paragraph 6 P: FTAs will not always help to achieve Sg’s objectives via free movement of labour E/E: Explain how free labour flow is not beneficial -Labour inflow will depress the wage rates, especially in the labour intensive sector. Foreign labour may also replace the local labour and thus, lead to the problem of resident unemployment -Singaporean skilled labour may move overseas and thus, the brain drain may lower the future capacity of Singapore, threatening her potential growth. L: Overall, the extent to which Singapore will benefit depends on the policies adopted to maximise the net gains.


Content Development

Contextualisation



Prelim Revision Body Paragraph 7 P: The extent to which there is net benefit depends on the policies that Sg adopt to combat the potential disadvantages E/E: With regard to trade, Sg’s constant effort to upgrade export competitiveness by improving the quality of goods/services, focus on tourism, strong currency to prevent imported inflation etc. have enabled Singapore to ensure that the potential threats can be easily countered -With regard to free capital movement, Singapore has ensured quality control in terms of the FDI that comes in to improve the potential of Sg (focus on productive investments). Providing good infrastructure and growth opportunities have helped Singapore to attract FDI consistently -With regard to labour movement, Singapore has revised the foreign worker policies to moderate the numbers. To attract the local talent Singapore govt. has focused on providing good quality of live and security and various employment benefits. L: Overall, the policies adopted have proved to ensure that Singapore stands to gain more through the FTAs.


Content Development

Contextualisation


FTAs will lead to both rise inflow and outflow of capital


Prelim Revision


L1 (1 – 9) L2 (10 – 14) L3 (15 – 21)

Addressing Question

Requirement

Did the answer

address the

direction and key

words?

Answer is descriptive

and/or regurgitated

statements that are of

little relevance to

question requirement

Answer shows a

superficial knowledge

of the FTA and

candidate is only able

to apply it to explain

free trade

Attempts to link to

Singapore’s

macroeconomic

objective are weak

Thorough knowledge

of the FTAs and how

they work

Answer analyses the

overall benefit of FTAs

in the light of Sg’s

macro objectives

Attempt to make a

comparison with other

factors/net benefit is

explicit and clear


Prelim Revision

Content Development

L1 (1 – 9) L2 (10 – 14) L3 (15 – 21)

Content Development

Were points

made supported

with diagrams

and tables?

Were points

made supported

with economic

theories?

Points made are

not deliberately

supported with

diagrams and

economic theories:

Mere stating of the

movement of trade,

labour and capital

without any strong

attempt to link to

the objectives

Points are made and

sometimes supported

with diagram and

economic theories:

Incomplete economic

analysis or

inconsistent links

made between FTA

and macroeconomic

objective

Points are made and

supported with diagrams

and economic theories:

Explanation of how FTAs

work and their links to

macroeconomic

objectives are

consistently made.


Prelim Revision

Contextualisation

L1 (1 – 9) L2 (10 – 14) L3 (15 – 21)

Contextualisation

Is there a context

to the question?

Were examples

used to support

given points?

No/Little/Random

use of examples

that did not

support points.

Largely incidental.

Some attempt to

bring in nature of

SG’s economy but

without much links to

points given.

Able to relate the

relevance of SG’s unique

characteristics to her

need to establish such a

network of FTAs.


Prelim Revision

Argument Development

L1 (1 – 9) L2 (10 – 14) L3 (15 – 21)

Argument Development Did answer provide balanced discussion that considers different perspectives? Was the flow of argument coherent?

A one-sided

answer on how

FTAs benefit

Singapore.

Some attempt to

look at benefits and

costs of FTAs to

Singapore.

Able to analysis the

effectiveness of FTAs

on various

macroeconomic

objectives of Singapore.

Considered other

perspectives such as

short and long term

effects, impacts on

labour & capital flows.


Prelim Revision

Evaluative comments

Evaluation

Was a relevant stand

provided?

Did the answer

attempt to justify the

stand made?

E1

No judgment is made to

answer question.

E2

Overall stand is given to

address question. Stand is

also supported with

justification.

The evaluation adds value

to the overall answer by

exploring ways in which the

benefits can be maximised.


Prelim Revision Conclusion + Evaluation The network of FTAs provide both benefits and challenges. However, the ability to retain the competitiveness of the nation by keeping wage rates and general prices under control, safe environment for productive investments and allowing for the right amount of foreign labour, Singapore has mostly benefited from the free trade policy. Q1) Is the above the best way to conclude and warrant 4 marks? To consider: • The unique characteristics of SG, our network of FTAs

arises more from need than choice. • This network can only benefit SG provided our internal

policies are sound. • The sustainability of maintaining such a network & to

continue to tap into this network to achieve our aims


Content Development

Contextualisation


Arguments Development

Evaluation

Prelim Revision Conclusion + Evaluation The network of FTAs provide both benefits and challenges. However, the ability to retain the competitiveness of the nation by keeping wage rates and general prices under control, safe environment for productive investments and allowing for the right amount of foreign labour, Singapore has mostly benefited from the free trade policy. Q2) How else can evidence of evaluation be shown other than an evaluative conclusion? • To consider the entire flow of the essay, whether your

theses are stronger/weaker than your anti-theses.


Content Development

Contextualisation


Arguments Development

Evaluation

Qn 16 International Economy (FTA)

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Transcript of Qn 16 International Economy (FTA)