EXPORT INSTABILITY IN SINGAPORE

Abstract

The belief that export instability can hinder economic growth and development has led in the past to demands by international organisations such as UNCTAD for international commodity agreements to stabilise commodity prices and compensatory finance schemes to aid Less Developed Countries (LDCs) experiencing cyclical shortfalls in export earnings. In Chapter 1 we shall review the literature relating export instability and economic development. Although Singapore is not structurally a typical LDC, having achieved substantial Industrialisation and an income per head comparable with many developed countries, her commitment to a free trade policy and overall dependence on the world economy has rendered her domestic economy vulnerable to the same external shocks· and events that concern LDCs. It is therefore pertinent to examine the impact of export fluctuations on the Singapore economy after having briefly summarised the important macroeconomic features of Singapore since 1960, in Chapters 2 and 3. A time series simulation approach will be used in Chapter 4 to investigate the impact of export fluctuations on the Singapore economy between 1972 and 1986. The simulation model used is a modification of the macroeconometric model for the Singapore economy built by Toh & Low (1990) which contains submodels for trade, construction, labour, government and others. The modified model, which will be called Link 2, is a non-linear system that contains 22 behavioural equations and 11 identities, giving a total of 33 equations. Since the model in question is a non-linear system, an appropriately designed dynamic and deterministic simulation experiment will be conducted to calculate dynamic multipliers. We hope that such an exercise will contribute to our understanding of the dynamic response of the Singapore economy to the influence of export fluctuations. our major conclusions are that the effects of export shocks on income and employment are heavily dampened by leakages and other automatic stabilizers in the economy, and that the impact of such shocks depends on the type of export series used. In the case of Singapore it is important to distinguish between the 'official' export series and a series which captures more accurately the magnitude of reexports.