The determinants of direct overseas investment from Singapore

The focus of this thesis is the determinants of inward and outward direct investment in Singapore's economy. The primary aims are to examine what motivates Singapore firms to venture overseas; investigate the geographical composition of Singapore's investment abroad; identify Singapore's investment strategies, strengths and weakness; and consider whether the cu"ent trend of overseas investment is likely to continue into the year 2000. Foreign investment inflow and outflow in the case of Singapore is particularly interesting because of the unusually high level of foreign firms vis-a-vis other East Asian newly industrialised economies (over 3,000 foreign subsidiaries, representing the highest concentration of foreign activities in one location). Once considered incapable of even surviving as an independent country because of lack of natural resources and its free port status, Singapore's economy is currently cited in appropriate economic development literature, as one of the most successful stories in the world. By employing an export-led development strategy that maximises its comparative advantages in skilled labour, infrastructure, and geographical location, Singapore has confounded its critics and posted one of the highest growth rates in the developing world. Government initiative has been a critical component of the Singapore's success. Although observers have frequently praised Singapore for its free market policies, they have often neglected the government's importance and wide-ranging economic roles, extending from its extensive institutional networks and regulatory activities, to its active involvement in production through the plethora of state corporations that it has created. The success of the government has, however, been heavily dependent on foreign capital inflow. Unlike Korea, Taiwan and Japan where the power of the state is rooted in the success of the local entrepreneurs, in Singapore, the success of the state is closely tied to foreign capital. Thus, Singapore has the weakest indigenous group of entrepreneurs in the whole of Asia. Foreign investors account for over eighty per cent of manufacturing investment in Singapore. Such a dominant level of direct investment requires fundamental investigations as to what are the causes of foreign direct investment (FDI) inflow in Singapore. Moreover, in recent years, Singapore has emerged as a major provider of international direct investment. The question then is if Singapore is a net recipient of FDI, why is it also a net capital exporter. Thus this thesis examines the causes of inward and outward direct investment in Singapore's economy. Theoretically, two broad views have been challenged ill the thesis: the neoclassical capital arbitrage and the intangible capital theories of FDI. However, the fundamental assumption of the thesis is that there is a correspondence between a country's comparative advantage and its outward direct investment on the one hand, and the international division of labour between the investing and the recipient countries on the other