Four Factors Of Economic Growth In Singapore's Economy

Introduction

Economic growth is the expansion of production possibilities. It is determined by the growth rate of Gross Domestic Product (GDP). GDP is the indicator of final good and services produced by a country.

Economy growth is a sustained, year-after-year increase in real GDP. Potential GDP is present only when the following four factors such as labour, land, capital and entrepreneurships are fully employed (Parkin, 2014).

Background information Fig. 1

Singapore shows a significant increase in GDP (Fig. 1) from USD$127.42 billion in 2006 to USD$297.94 billion in 2014. The gradual increase in GDP signifies that the country is in the phase of rapid economic growth.

The two sources affecting the growth of real GDP are supply

2(c) and 2(d), to boost real GDP with a new equilibrium, it is necessary to shift the demand of labour curve to the right. One way is to increase the demand for labour is trade. Singapore do not have any natural resources and relies on trade to support the economy. Singapore became one of the busiest trading centre due to her strategic location. In April 2012, Trafigura, one of the world's largest commodities traders shifted their headquarters to Singapore. With more foreign investors choosing Singapore as a trading hub, this creates more job opportunities locally and will boost the nation's GDP (IE Singapore,

Singapore have been established as a lean government which has been thrifty in government spending. The government spending is capped below 20% of the GDP. This helps to generate more reserves in cases of rainy days. With a pool of ample reserves, the government can reduce tax rates progressively. Singapore's tax policy is one of the policies which make Singapore more competitive and attracts foreign investments to Singapore (MTI, 2003).

Corporate tax of 17% will be levied on the income earned by companies in Singapore. The government introduced the start-up tax exemption in 2004. Newly set-up companies will be granted with exemptions in the first three years of operations. As companies expand, they structure themselves into subsidiaries to manage liabilities. Being exposed to the risk-taking and entrepreneurial activities, Singapore government introduced the loss transfer system of group relief. Any un-utilised loss of a company can be transferred and offset against another profit earning company within the same group. This will lighten the overall tax burden for the whole company group (MOF,