Select your language

Suggested languages for you:
Log In Start studying!
StudySmarter - The all-in-one study app.
4.8 • +11k Ratings
More than 3 Million Downloads
Free
|
|

All-in-one learning app

  • Flashcards
  • NotesNotes
  • ExplanationsExplanations
  • Study Planner
  • Textbook solutions
Start studying

Singapore Economy

Save Save
Print Print
Edit Edit
Sign up to use all features for free. Sign up now
Singapore Economy

According to IMD World Competitiveness Ranking, Singapore retained the top spot as the world's most competitive economy in 2019, switching place with the US. However, around fifty years ago the country was rife with unemployment, low-skilled workers, and foreign trade barriers. What has led to this remarkable shift in Singapore's economy? Read on to find out!

Singapore Economy Singapore economy growth can be seen in its quick development StudySmarterPicture of Singapore's skyline today, Wikimedia Commons.

Singapore’s economic history

Singapore's economy is closely linked to its political environment. Thus, to understand the Singaporean burgeoning economic scene, we need to look back to its formation days, starting with the British rule.

Singapore under British colonisation

The modern history of Singapore began in 1819 when British statesman Stamford Raffles established a trading port on the island of Singapore. Later it became a British colony as part of the Straits Settlements. The bustling port activities attracted thousands of migrants from nearby Asian countries, especially China and India to come and settle on the island.

In 1867, the British agreed to make the Straits Settlements a separate crown colony. Over the next two years, the Suez Canel was opened and trade in Singapore experienced a dramatic surge. By the early nineteenth century, Singapore became the British main naval base in East Asia. However, during World War II, Britain failed to protect its colony from the Japanese who renamed the port city Syonan (Light of the South).

Gaining independence

When Britain returned to rule over Singapore in 1945, its credibility had been destroyed in the public eye. Eventually, the Straits Settlements disintegrated and Singapore became a separate crown colony.

In 1963, the country joined the Federation of Malaysia. However, it exited only after two years due to the dispute of politics and ethnicity. 31 August 1963 also marked Singapore’s independence from the United Kingdom. Yusof bin Ishak became the president and Lee Kwan Yew was the influential prime minister.

Despite its sovereignty, Singapore’s economy was in trouble. The high unemployment rate coupled with the shortage of housing, sanitation, and water supply gave rise to serious crime and diseases. Singapore was sandwiched between two large, unfriendly neighbours: Malaysia and Indonesia. Meanwhile, prime minister Lee's pleas for international assistance went unnoticed.

Embarking on globalisation

At the time, Singapore's economy still benefited from the entrepôt trade - the importing, storing, exporting of goods at the port. Yet, these services didn't provide ample job opportunities for the local people which was what Singapore desperately needed to boost its employment rate.

Entrepôt trade refers to a port city, a trading post, port, city, or warehouse where merchandise may be imported, stored, or traded before re-export, with no additional processing taking place and with no customs duties imposed.

This led to the launch of an intensive program of industrialisation with a focus on labour-intensive industries. However, this was met with two main challenges:

  1. The country didn't have an industrial tradition. The majority of its workforce was experienced in trade and services.
  2. The neighbouring countries were less than willing to collaborate for development.

Under the pressure to find jobs for its people, the leading party of Singapore joined the race of globalisation. Taking inspiration from Israel's trading with Europe and America after being boycotted by its Arab neighbours, Lee reached out to the developed world and persuaded the multinational companies to invest in his country.

Stabilising the economic and political climate

To attract foreign investment, Singapore had to prove that it was a safe and profitable economy. Thus, in addition to lowering taxes, Singapore enforced tighter laws to clean up the post-war disordered scenes.

Corruption and trade of illegal drugs became the worse crimes in Singapore: they could cause the offender to face death penalties. All independent labour unions were grouped into one single union, the National Trade Union Congress (NTUC). And any behaviour disrupting ‘national, political, corporate unity’ could put a person in jail.

With these harsh law enforcement, Singapore's economic and political conditions quickly stabilised, giving it a competitive edge to acquire funding from abroad.

Singapore's economic success

The strict government rule may trigger debates about human rights and the rule of law, but there's no doubt about its economic effectiveness.

Only 7 years after its independence (1972), Singapore had become a foreign investment magnet. More than one-fourth of Singapore's manufacturing firms partnered with or were owned by a foreign entity. The majority of the investors came from the United States and Japan. The country also achieved a double-digit economic growth rate every year.

Singapore Economy Singapores foreign domestic investment from 2000 to 2019 StudySmarter OriginalFigure 1. Singapore's foreign domestic investment from 2000 to 2019, StudySmarter Original. Created with data from the World Bank, data.worldbank.org

With massive foreign fundings, Singapore invested heavily in its human resources and infrastructure. Technical schools were opened and international corporations were hired to train unskilled workers in high-demand fields such as technology, petrochemicals, and electronics. Education on tourism and transportation were also given close attention.

In the 1970s, the country's main exports were mostly textiles, garments, and basic electronics.¹ Twenty years later, it had dabbled into electrical machinery, computers, optical, technical, medical apparatus, gems, and precious metals. (See Figure 2).

Singapore Economy Singapores top 5 exports 2020 StudySmarter OriginalsFigure 2. Singapore's top 5 exports 2020, StudySmarter Originals. Created with data from World's Top Exports, worldstopexports.com

Singapore’s market economy

Nowadays, Singapore is a highly developed free-market economy.

Entrepôt trade still makes up about one-third of Singapore's exports. The Port of Singapore is also the world's busiest business transhipment port, surpassing Hong Kong and Rotterdam. In terms of the cargo tonnage handled, it takes the second spot only to the Port of Shanghai.

Singapore has a robust trading relationship with many of the biggest economies of the world such as China, the USA, Indonesia, Malaysia, and Japan. There are over 37,000 international firms in Singapore, and 7000 multinational corporations are headquartered there.

The tourism and service industry of Singapore is thriving, with over 18 million visitors coming to the port city in 2018, spending roughly $27.1 billion on their trips.

Banking in Singapore is another prosperous business sector, especially after the rise of tax by the Swiss, which caused many people to move their assets from Switzerland to Lion City. Other fields like biotech and oil refining also bloom in Singapore.

With merely 433 square miles and a population of 5.7 million people, Singapore has achieved a remarkable GDP of more than $300 billion annually, much higher than most parts of the world.²

Singapore's economic ranking

  • The country scored 89.7 on the economic freedom index, making it one of the freest in the world to trade.³
  • The World Economic Forum scored Singapore 85 out of 100 in terms of global competitiveness.⁴
  • The country ranked first as the most open market according to ICC Open Market Index in 2017.
  • Singapore is the third least corrupt economy in the world.
  • Its GDP per capita takes fourth place on the world chart.⁷

What are the reasons for Singapore’s economic success?

There are many factors contributing to the success of Singapore's economy, but let us consider three of the main factors:

  1. Capitalised its advantage. Singapore has capitalised on its strategic advantage: a port country. Singapore displays strength in ship management and shipbroking, which makes it one of the world's most important commercial maritime destinations, along with Hong Kong, London, Shanghai, and Dubai.
  2. Embrace of globalisation. Shortly after its independence, Singapore began trading with developed countries and convinced multinational companies to set up manufacturing in its territory. This has allowed the country to overcome the lack of collaboration with neighbouring countries. To attract investors, Singapore works hard to create a stable economic and political environment, even if it has to enforce stricter laws and regulations for its citizens.
  3. Investment in education. Singapore puts education before everything else as only education can provide workers with high marginal productivity of labour.

Singapore Economy - Key takeaways

  • Singapore was a colonized state under Britain's rule.
  • Despite facing a lot of setbacks after its independence such as lack of natural resources, water supply, high conversion and crime rate, Singapore has become one of the most robust economies in the world.
  • The success of Singapore's economy can be put down to globalization strategy, the determined attempt to create a stable economic and political environment, as well as heavy investment in education.
  • Nowadays Singapore is a highly developed free-market economy.
  • Its economy blooms in many sectors such as port trading, tourism and services, banking, biotech, oil, etc.
  • It is the freest country to trade in the world (2021) and has GDP per capita retaining a fourth place in the global chart.
  • The main trading partners of Singapore are China, the USA, Indonesia, Malaysia, and Japan.

References

1. Ping Zhou, The History of Singapore's Economic Development, ThoughtCo., 2019.

2. Singapore GDP, World Bank Data, 2020.

3. Singapore Index of Economic Freedom, Heritage, 2022.

4. Singapore crowned the world's most open and competitive economy, We Forum, 2019.

5. ICC Open Markets Index 2017, International Chamber of Commerce, 2017.

6. Singapore Transparency Score, Transparency, 2020.

7. Avery Koop, Mapped: GDP per Capita Worldwide, Visual Capitalist, 2021.

Frequently Asked Questions about Singapore Economy

Nowadays, Singapore is a highly developed free-market economy. The country scored 89.7 on the economic freedom index, making it one of the freest in the world to trade. It also ranked first as the most open markets according to the ICC Open Market Index in 2017. The free trade economy is a result of the government's attempt to encourage foreign investments during the post-war era. 

The success of Singapore's economy can be put down to 3 main reasons. First is the adoption of globalisation strategy during the post-war era, to establish trading partnerships with developed countries and convince MNCs to set up manufacturing in Singapore. Second, the government's determined attempt to create a stable economic and political environment for investors. Finally, education plays a huge role in making Singapore one of the top economies in the world. 

Yes, its shift to a more autocratic government (put more control under one person) stabilised the economic and political conditions of Singapore after the war. This encouraged more foreign investors to invest in the country and boost its economy. 

According to World Population Review, Singapore is the richest country in Asia, with GDP per capita averaging $107,690. It's not only rich in oil reserves but also has the lowest level of corruption and an open economy. 

It was $340 billion in 2020 according to the World Bank.


Final Singapore Economy Quiz

Question

What is the type of economic system in Singapore?    

Show answer

Answer

Singapore is a highly developed free market economy.

Show question

Question

What makes Singapore's economy so successful? 

Show answer

Answer

Investment in education

Show question

Question

Singapore is the richest country in Asia. 

Show answer

Answer

True

Show question

Question

Choose three factors that make Singapore's economy successful. 

Show answer

Answer

The abundance of natural resources

Show question

Question

When did Singapore gain its independence?

Show answer

Answer

1963

Show question

Question

Singapore was a British colony.

Show answer

Answer

True

Show question

Question

Name some high-tech fields Singapore is engaged in.

Show answer

Answer

Wafer fabrication, logistics, biotech, pharmaceuticals, integrated circuit design, aerospace engineering.

Show question

Question

How many international businesses are there in Singapore?

Show answer

Answer

37000

Show question

Question

How many multinational companies have headquarters in singapore?

Show answer

Answer

7000

Show question

Question

How many multinational companies have headquarters in singapore?

Show answer

Answer

7000

Show question

Question

Who are major trading partners of Singapore?

Show answer

Answer

China, the US, Malaysia, Indonesia, Japan

Show question

Question

How much does entrepot trade (import, storage export of goods at the port) make up Singapore's exports?

Show answer

Answer

one third

Show question

Question

Why does Singapore invest heavily in education?

Show answer

Answer

Singapore puts education first before everything else as only education can provide workers with high marginal productivity of labour. 

Show question

Question

What are unfavorable conditions for Singapore after gaining its independence?

Show answer

Answer

High unemployment rate

Show question

60%

of the users don't pass the Singapore Economy quiz! Will you pass the quiz?

Start Quiz

Discover the right content for your subjects

No need to cheat if you have everything you need to succeed! Packed into one app!

Study Plan

Be perfectly prepared on time with an individual plan.

Quizzes

Test your knowledge with gamified quizzes.

Flashcards

Create and find flashcards in record time.

Notes

Create beautiful notes faster than ever before.

Study Sets

Have all your study materials in one place.

Documents

Upload unlimited documents and save them online.

Study Analytics

Identify your study strength and weaknesses.

Weekly Goals

Set individual study goals and earn points reaching them.

Smart Reminders

Stop procrastinating with our study reminders.

Rewards

Earn points, unlock badges and level up while studying.

Magic Marker

Create flashcards in notes completely automatically.

Smart Formatting

Create the most beautiful study materials using our templates.

Sign up to highlight and take notes. It’s 100% free.