COMPETITIVENESS OF SINGAPORE'S ELECTRONICS EXPORTS TO USA

Abstract

This study investigates the effects of exchange rate changes on Singapore's share of US electronics imports. The effects of exchange rate volatility on Singapore's share of electronics US imports are also looked into. Adopting a linear market share model, the results show that a depreciation of real exchange rates vis-a-vis Singapore's export competitors raises Singapore's share of US imports in electronics. Results also indicate that Singapore is flexible and quick to meet changes in demand conditions. The results show no significant lag effects of exchange rate changes on overall electronics exports except for electrical machinery (SITC 77) which has one-quarter lag. Results for consumer electronics also suggest that non-price factors could increase the resilience of a country's product to price competition. Results also show that high volatility could reduce Singapore's share of US electronics imports. The implication of these results is that a real exchange rate depreciation in the Singapore dollar could increase Singapore's share in the US electronics market. However, there is a relevant concern with the ramification of Singapore dollar depreciation on imported inflation in Singapore working through the wage-price spiral. Nevertheless, given the prevalent low inflationary economic climate coupled with the relative real appreciation of the Singapore dollar vis-a-vis its Asian competitors in US electronics import market, a real Singapore dollar depreciation does provide a viable complementary macroeconomic tool in Singapore, with present cost-cutting measures being undertaken. In addition, a stable Singapore-US real exchange rate would be necessary to prevent excessive volatility from hurting Singapore's share of US electronics imports.