COMPETITION, TRADE AND GOVERNMENT POLICIES

Abstract

East Asia countries have been the miracle of this century. The fast growth rate especially in the NIEs, Hong Kong, Singapore, South Korea and Taiwan, has strongly suggested gain from liberal trade policy. These countries actively pursue export-led strategies and invest in human and physical capital to create competition. Two models have been developed to explain first how a host country can tap into the technology and managerial knowhow from the foreign country and second to explain why foreign companies are not willing to invest in R&D in host country even though they are capable of doing so. On the other hand, the reason why the domestic enterprises in the host country are willing to engage in R&D investment but incapable of doing so. In the first model, foreign investors, such as the MNCs, usually form strategic linkages with the domestic enterprises of the host country. This creates a chance for the domestic enterprises to tap into the technology and management skills of the MNCs through imitation or adoption. In the second, it has been found that MNCs are not willing to invest in R&D in the host country. The reason is that such an investment is more risky than if engage at home. The lack of R&D personnels and lower level of critical mass in host country are the usually factors that hinder such investment. Conversely, the domestic enterprises of host country are willing to engage in R&D, but are prevented by the lack of needed capital. Hence, the role of the government and its taxation and expenditure are also examined through the models, in the light of the domestic and foreign component. The thesis also looks closely at the growth of Singapore since 1960s to present, and the impact of two recessions during this period of time. It discusses the policies implemented by the government over the years. Singapore's philosophy is free market mechanism and outward orientation. Constrained by its small size, Singapore pursues the world as its market, thus it has to be opened to capital inflow and trade. Being open to the world, it ensures that firms in the economy are both competitive and efficient. In a mere forty years, Singapore has changed from a predominantly entrepot trading to a high value added industrialized nation. Both fiscal and financial incentives have been used to stage the pace and direction of its development. The Economic Development Board has been an active helper in attracting foreign investments and nurturing the local enterprises. Since its independence, Singapore pursues an export-led growth strategy: export promotion. Singapore has transformed from a mere production base to a value added production centre as well as a total business and financial hub to the investors. Till recently, it pursues the IT industry and aims to be a knowledge-base society through engaging in R&D activity, equip with a creative and innovative workforce. In simple words, Singapore is emulating a "Silicon Valley" in the country and to stay ahead in the rat race.