Suggested Answers of BT2 Revision Package - ASKnLearn

2010 RI (JC) Prelims H1 Paper CSQ2: Foreign Investment(a) (i) Using Figure 1, compare the trend of Foreign Direct Investment inSingapore and Singapore’s Direct Investment abroad between 2004 and2008 [2]Both increase between 2004 and 2008. However, FDI in Spore is always higher thanSpore’s direct investment abroad.(ii)With reference to Figure 1 and Figure 2, assess the likely BOP positionof Singapore between 2004 and 2008.[6][6]BOP comprises current account and financial account.From Fig 1, Spore’s BOT is likely to be a surplus since value of exports is greater thanvalue of imports. This is likely to lead to a current account surplus. Also from Fig 2,Financial account is likely to be in surplus because financial inflow due to FDI is greaterthan financial outflow due to Spore’s direct investment overseas.Therefore BOP is likely to be in surplus.However, there are other components in the current account (income flow and moneytransfer) and financial flow account (hot money flow) which are not provided in case study.Therefore, we cannot assess BOP position because of insufficient data.((b)Discuss whether China’s protectionist measures in Extract 5 can be justified interms of economic theory.[6]Thesis:Based on the theory of comparative advantage, USA currently has greater endowment oftechnology and high quality labour force, therefore USA has CA in knowledge intensiveindustries like advanced technology and R&D. However, China has potential CA in theseindustries too and therefore, has engaged in protectionist measures to help its firmsdevelop at their infancy stages. This is justified but only in the short term.Anti-thesis:From the case study, it seems that the measures are not meant to help new start-ups in theshort term. Some of the measures require American firms to create Chinese brands andtransfer R&D of new products to China in order to have access to Chinese markets, eg theregulation for foreign firms to have joint venture with Chinese firms in the automobileindustry. This clearly is unfair trade practice against foreign firms.Synthesis:China’s protectionist measures do not seem justified and as seen in the extract, this islikely to invite retaliation from her trading partners. When this happens, all parties will sufferin terms of reduced trade and reduced investment in the world.