grauer notes

grauer notes - 1 The development strategy of Singapore...

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1) The development strategy of Singapore Singapore is a generally acknowledged showcase in promoting industrialization, even though its domestic market is too Lilliputian for protection. In both contexts, trade restriction – the principal concern of WTO/GATT – is conspicuous by its absence. In fact, any industrial policy is viable, if it neither restricts trade, nor triggers actionable complaints. Forming cross country alliances = good. Infant Industry Protection triggers actionable compaint. The secret for success is to design a game with win-win solution, and gain the most among all players. Singapore succeeded by harnessing the trend in international trade, namely, fragmented production. Trade allows the South to industrialize through the division of labor with the North, rather than de-linking from the latter. In succinct terms, the twin principles of the strategy are (a) ‘To leapfrog the region’, and (b) ‘To create a First World oasis in a Third World region’. a) (a), to industrialize for Singapore, a small, remote and pre-industrial state, both the source of technology and the market for output must be found in the industrial world, half a globe away. b) With itself as the core, the ‘oasis’ organizes the desert nearby into an effective hub- spokes network, to seek outside opportunities on the bases of division of labor. The litmus test of being ‘fully developed’ that Singapore has passed is to match the First World in output per capita . Two implications: First, in the developing world, producers suffer twin disadvantages: both an initially low productivity relative to the North and the costly transportation to that industrial center they depend on. These drawbacks can be ameliorated through learning by doing and the improvement of transportation, respectively. Second, further progress can only come from building alliance, and receiving compensation as fee for service. The services the hub may provide the spokes include both the reduction in transportation cost, by the use of its superior connection with the North, and trouble-shooting on the basis of its own experience. The implication of this strategy of alliance-building – the presence of two complementary patterns, over time and across space – is testable. First, over time , the development proceeds from the pre-industrial stage (like being an entrepôt for natural resources gathered nearby), to the industrial stage (like focusing on the division of labor with the developed North), to ultimately the post-industrial stage (like providing service to industrialize neighboring economies). Trade provides the North the access to the low-wage labor from the South, and the South the only practical chance to participate in industrial production. Economic development being path-dependent, with all the facilities left by the British intact, it is
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This note was uploaded on 06/25/2009 for the course ECON 4450 taught by Professor Wan during the Spring '09 term at Cornell.

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grauer notes - 1 The development strategy of Singapore...

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