IMPACT OF TRADE AND FOREIGN DIRECT INVESTMENT ON EMPLOYMENT IN THE SINGAPORE MANUFACTURING INDUSTRY: AN EMPERICAL ASSESSMENT AND POLICY IMPLICATIONS

Abstract

Several studies, using factor content or growth accounting approaches, have been conducted to find out the impact of trade on employment. In this dissertation, a different approach - the dynamic labour demand framework is used to model the impact of trade and FDI on employment in Singapore's manufacturing industries. This is done through analyzing 2-digit manufacturing data from 15 industries in Singapore from the period 1980-2006. The different impacts across industries are explained through examining the elasticity of substitution of labour and capital in each of these industries. The analysis is done at 3 levels. The aggregate level, the industry clusters and the individual industries. The results at the aggregate level show that only exports has an impact on employment while trade and FDI elasticity are stronger in modem industries as compared to traditional ones. At the individual industry level, different industries show varying effects of trade and FDI on employment. Based on the results of the analysis, possible opportunities and threats relating to trade, FDI and employment in the Singapore context are raised. Existing policies are discussed and recommendations are proposed to help Singapore increase demand for labour making use of the knowledge about trade and FDI effects derived from the results of this dissertation. Finally, suggestions on how to deal with income inequality conclude this dissertation.