Tuesday, December 18, 2012

Building physical infrastructure in Singapore-first step towards agglomeration

Building physical infrastructure in Singapore-first step towards agglomeration

by Ivan Vovkanych

Singapore 40 years ago was a poor in all aspects area. In 1971 the strategic development plan was first introduced by the government. The reforms in housing, government expenditure, economic and infrastructure areas have been introduced. Now Singapore is a thriving city and an international business center. So what exactly Singapore government did that made such a progress?

Housing problem and unemployment were one of the most important issues after obtaining independence. Therefore the Housing and Development Board (HDB) and the Economic Development Board (EDB) have been established to deal with these problems. Cheap public housing has been introduced along with building schools, medical clinics, community centers etc. Government fostered mixing up homes of different classes, races and provided subsidies for lower income families in order to create balanced multi-racial, multi-class community. Along the salvations of class problems, sense of regional identity has been formed by building location-specific environments. These actions increased the fixed capital accumulation in the region and by this positively influenced efficiency.

Another important asset that Singapore government improved is the seaport. Port Authority of Singapore (PSA) has been created to coordinate actions with other logistics means like the air and land transport in order to create a global integrated logistics hub. 

Government used the following steps to achieve the given goal:

1. The port has been increased to play bigger role in the international trade,

2. Competition from other port, the Jurong Port, has been introduced to increase the quality and decrease the price of services offered.

3. World business executives were invited to join the team as board and executive committee members.

The first airport in Singapore was based at Paya Lebar, close to residential areas. In 1970s an airport has been build at Changi site. This place had better approach via the sea, better road access, there were less residential areas affected by noise and much less economically useful land has been used for it.
Moreover, advanced system of radial roads converging to the city center was built and The Mass Rapid Transit (MRT) railroad connection systems between Changi Airport, the North-east of Singapore, Sentosa, and Marina were introduced.
As the result a cargo arrived by plane, transported by a truck and sent further by ship via the seaport would be treated as a free trade zone regulated under single the special customs treatment mechanism. This decreased the transport costs and improved the trade dynamics in Singapore in order to make it a tread center of the region.

It is almost impossible to evaluate the influence of investments in the physical infrastructure on the development of Singapore and the agglomeration of firms and population without consideration of education, science, innovation, healthcare etc. But, based on theories of urban development a number of effects can be seen. First, transport cost for importing and exporting goods decreased. Bigger variety of goods supported competition and improved quality of products. This also allowed domestic producers to become competitive on the international markets. Secondly, increasing production and services capacities in the transportation industries led to increased market share and reduced cost. This helped Singapore to have comparative advantage and become one of the dominant players on the transportation market. Thirdly, according to New Economic Geography models, low transport cost, cheap housing (decreases price index) and home market effect made real wages relatively higher, ensured agglomeration in Singapore and improved efficiency of labor. Singapore development also proves the importance of History in migration dynamics. Since Independence transport costs were decreasing. After reaching breaking point agglomeration in terms of business and population occurred. This is an empirical demonstration how reaching the breaking point by reducing the transport costs changes the equilibrium from a spreading one to an agglomerated one.

Therefore Singapore is a perfect example to illustrate how physical infrastructure produced Home Market Effect, Price Index Effect, and Extent of Competition Effect with other externalities and contributed towards business and population agglomeration in Singapore.


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