HUMAN CAPITAL AND TRADE : THE CASE OF SINGAPORE

Abstract

The traditional comparative static version of the Heckscher-Ohlin model has been extended to include labour skills. The model is applied in this study as the basis for an empirical analysis of the changing pattern of the skill of Singapore's trade in the process of human capital accumulation over the period 1973-94. It is the aim of this analysis to ascertain whether there has been any significant shift in Singapore's comparative advantage over the period. Over the past two decades, Singapore has made the transition from a skill-scarce country to one that is relatively better endowed with human capital via heavy investment in education by the government. The study indicates that her comparative advantage no longer lies in the unskilled-intensive industries but in one that is relatively more skill intensive. The trade pattern is consistent with the traditional Heckscher-Ohlin model The empirical results show that Singapore's domestic exports embody a higher level of skilled resources, reflecting the move to the more skill intensive phase of her industrial development. Furthermore, the skill intensity of domestic exports is positively correlated with changing skill endowments. Trade has expanded Singapore's domestic market and hence raised the demand for skilled labour over that possible by relying on domestic demand. Trade has also enabled us to release our limited manpower from unskilled production. Along with human capital accumulation, these available human resources can be diverted to produce more skill-intensive goods which Singapore has a comparative advantage in. To ensure long term growth for Singapore, continues effort in upgrading its only human resources will always remain a must and an issue not to be overlooked.