THE ECONOMIC IMPACT OF THE SINGAPORE FINANCIAL SECTOR

Abstract

Many countries have realised in recent years that a financial sector can contribute significantly to the growth of the economy. Consequently, many are considering the establishment of financial centres in their countries. However, as Chapter I will show, hosting a financial centre has its benefits and costs. It is therefore necessary that the country concerned carries out an analysis of the sector's impact before embarking on any programme to develop the sector. In the case of Singapore, it is not so much on establishing the viability of the financial sector, but on promoting the existing industry if its impetus on the economy is favourable. The objective of this academic exercise is therefore to do an assessment of the financial sector's economic impact on the economy, thereby ascertaining whether further promotion of the existing industry is desirable. Should the sector's impact on the economy be favourable, this exercise attempts to examine the future of Singapore as a financial centre by doing the following analysis: (1) There is no doubt that Singapore had been successful in the last two decades as an international deposit-taking centre. The role of financial centres has, however, changed in the 1990's to capital market investments. The question then is whether Singapore is (i) flexible enough to adapt to these changes, and (ii) able to continue to be the financial centre in the future? (2) A lot of emphasis has been placed on specialization of financial services lately. To be successful, should Singapore be a specialist catering to a targeted group of people or a generalist offering everything to everyone? Should Singapore decide to focus on a few specific areas, which then are the areas in which it has potential in? (3) There are constraints inhibiting the growth of the financial sector in Singapore in this new era. What are they and how can they be eliminated? (4) Many countries are thus aspiring to be the next generation financial centres, given the many benefits of hosting a financial centre. Singapore does face competition in the future. But who actually are Singapore's competitors? The last chapter will summarize the above examination.