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Essay requirements:

  1. Define PPC.
  2. Raise 4 points on how the PPC can be shifted outwards.
    1. Injection of capital
    2. Improvement in quantity of labor
    3. Improvement in efficiency of capital (Technological advancements)
    4. Increasing the quality of labor

 

Introduction

The Singapore government can shift the production possibility curve outwards by increasing the production capacity in the economy through increasing the quantity or the quality of factors of production.

 

Point: Increase in quantity of foreign investment

  • Allows for quantity of capital to increase, therefore production capacity of economy increase, therefore PPC shifts outwards
  • Lower corporate income tax
    • (PRO) Increase in direct foreign investment leading to increase in production capacity
    • (Limitation) Decreasing corporate income tax already a global trend, therefore there is much competition from other countries and it may not be effective
    • (Limitation) Reduced tax revenue lead to budget deficit, increasing tax burden on citizens
  • Improve infrastructure
    • (Example) Singapore Jurong Island for Chemical manufacturing, Biopolis for pharmaceutical manufacturing
    • (PRO) Investors attracted to better infrastructure as it meets their needs
    • (Limitation) Many countries are bettering their infrastructure, therefore there is more and more competition from other countries in high value added industries. Costs in other countries may even be cheaper and Singapore cannot compete.
  • FTAs
    • (PRO) Removal or reduction of tariffs on exported goods → Cheaper goods → Incentivise firms in non-member countries that export to the FTA member countries to invest and move to Singapore (Want to circumvent tariffs)
    • (Limitation) FTA difficult and time consuming to negotiate and require lots of political capital to do so
    • (Limitation) Singapore already signed FTAs with many key and large trade partners (EG USA). Therefore new FTAs would make little impact to aiding the growth of Singapore’s economy.
  • Improve intellectual property rights
    • (PRO) Encourages more firms to invest in Singapore as they know that their IP and products are protected and will not be stolen
    • (Limitation) High enforcement costs

 

Balance of payments accounts summarize international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items.

 

Point: Increase in quantity of labor

  • Quantity of labor increase → Production capacity increase → PPC shifts outwards
  • Lower personal income tax
    • (PRO) Attract expatriates and foreign workers to work in Singapore leads to increase in production capacity
    • (Limitation) Outward income remittances increase leading to decline in balance of payments (See definition of balance of payments)
    • (Limitation) Lowering personal income tax may lead to a persistent budget deficit, increasing the tax burden for future generations.
  • Increase retirement age
    • (PRO) Allows Singaporeans to work longer, leading to an increase in production capacity
    • (Limitation) Education and training may be needed to increase the skills, knowledge and relevancy of the elderly workers

 

Point: Increase in quality of labor

  • Quality of labor increase → Production capacity increase → PPC shifts outwards
  • Government set up educational institutes directly or provide subsidies/tax incentives to firms to induce them to send their workers for education and training
    • (Example) Singapore government set up 5 polytechnics to provide education and training
    • (PRO) Increased human capital due to new skills and knowledge gained by labor force.
    • (Limitation) Persistent budget deficit due to costs involved
    • (Limitation) Takes a long time to educate and train
  • Allow more highly skilled workers into Singapore
    • (PRO) Quality of labor increases
    • (Limitation) Unhappiness among locals due to increase in job competition
  • Lower personal income tax
    • (PRO) Attracts more foreign talent to migrate to Singapore
    • (Limitation) Outward income remittances increase leading to decline in balance of payments (See definition of balance of payments)
    • (Limitation) Lowering personal income tax may lead to a persistent budget deficit, increasing the tax burden for future generations.

 

Point: Increase in efficiency of capital

  • Efficiency of capital increase → PPC shifts outwards
  • Government set up research institutes directly or provide subsidies/tax incentives to firms to encourage them to engage in R&D
    • (Example) Setting up of Biomedical Research Council (BRMC) and Agency for Science, Technology and Research (A*STAR) by Singapore government
    • (PRO) Leads to technological advancement, increasing efficiency of capital in the economy
    • (Limitation) Effectiveness time lag of research and development can be long
    • (Limitation) Not all research and development is commercially viable
  • Tax incentives to improve technology usage in companies
    • (PRO) Encourages firms to adopt better production technologies
    • (Limitation) Tax incentives may lead to a persistent budget deficit, increasing the tax burden for citizens.

 

 

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