Suggested Answers of BT2 Revision Package - ASKnLearn

their US counterparts. With trade however, they are likely to be able to increase thevariety of goods and services consumed more significantly and thus enjoy a largerimprovement in SOL.oSmall and open economies also benefit more than large and less open economies fromthe freer movement of capital arising from globalisation:oSmaller economies have smaller domestic markets which lack depth and breadth. Theyhence benefit more from the free movement of capital as they are more reliant on foreigncompanies for technological transfer, since their technology base is likely limited due tothe small size of their economy, perhaps because of smaller firm numbers and smallerfirm sizes (which limits the size of accumulated profits that can be used for R&D).§With technological transfer, productivity in small and open economies like Singaporeis raised à raises potential growth and lowers unit COP à non-inflationary economicgrowth and falling unemployment.oSmaller countries would also benefit more significantly from FDI as small size ofeconomy also implies limited capital available domestically. Eg, Singapore has a muchsmaller capital base than the US or Indonesia. FDI inflows help increase domestic fixedcapital formation à promotes capital widening and deepening àraises productivity àraises potential growth and lowers unit COP à non-inflationary economic growth andfalling unemployment.oFDI Improves BOP Financial and Capital Accounts.oSmall and open economies also benefit more than large and less open economies fromthe freer movement of labour arising from globalization:oSmall labour force limits potential for economic growth, a problem that is faced by largereconomies to a smaller extent.§Free movement of labour resulting from globalisation, both high skilled and lowskilled, augments the quantity and quality of labourthus helping overcomeconstraints. This compares to large countries where larger pool of talent alreadyensures a larger productive capacity.§As labour force increases through high and low skilled immigration, increase inquantity and quality of labour force raises productive capacity à raises potentialgrowth and lowers unit COP à brings about non-inflationary economic growth andfalling unemployment.Anti-­‐thesis: Small and open economies may be more vulnerable to negative effects of globalisation than large and less open economies: