The New Global Economy: Opportunities and Challenges for Small Open Economies

This paper examines the strengthening forces behind the latest wave of globalization and draws out its consequences for the policy strategies of small open economies such as Singapore. The digital revolution’s contributions to globalization have been substantial, but so too have the policy reforms by national governments over the past two decades, both unilateral and regional. In addition, the GATT/WTO has been important in encouraging economies to open up more and to commit to staying open to international trade and investment during the past half century for rich countries and especially over the past decade for developing countries. Greater openness of and interdependence between national economies provides wonderful opportunities for small open economies, but it is not without its challenges. Globalization is raising the rewards to economies choosing good economic governance, but is also raising the cost to economies with poor economic governance. Crucial to good economic governance is a permanent commitment to a liberal international trade and payments regime, for services as well as goods, in addition to sound macroeconomic, sectoral and factor market policies.