The economic vulnerability and resilience of small island states : the case of Singapore

Abstract

This chapter examines the "Singapore paradox": the island state's highly successful development record since the mid-1960s despite the fact that it exhibits many of the inherent economic vulnerabilities of a small island developing state (SIDS), including extreme openness to international trade and factor flows, heavy dependence on imports of goods and services, and on foreign sources of labour and capital, and exposure to external shocks. Indeed, these vulnerabilities have been used to defend the Singapore government's decision not to accept reclassification as a fully developed country and have provided the rationale for a development strategy based on high levels of forced saving, high levels of centrally directed investment, a persistent build-up of official foreign exchange reserves and a strongly interventionist government in all sectors of the economy. The authors find that although some of the paradox can be explained by innate advantages associated with its location and history as an entrepot city-state and its ability to benefit from trade and other links with its growing neighbours in the region, much is due to "nurtured resilience" or good economic policy, including a certain amount of pragmatism and unorthodoxy when required. Since the mid-1980s, however, it has been harder to maintain such a centralised development strategy and Singapore is finding it increasingly difficult to overcome its vulnerabilities in a more globalised world where locational advantages are less important than in the past.