THE DETERMINANTS OF SINGAPORE'S FOREIGN DIRECT INVESTMENT ABROAD IN MANUFACTURING INDUSTRIES : AN EMPIRICAL STUDY

Abstract

Singapore's FDI in manufacturing industries has been increasing over the years and the pace is picking up in recent years. This phenomenon is not only occurring in neighbouring economies like Malaysia, but it is also taking place in the newly-opened economies like China, and developed countries like United States and Japan. In fact, as of December 31, 1993, the total volume of FDI in manufacturing industries was S$ 4,107.5 million. The main purpose of this paper is to better understand the determinants of Singapore's foreign direct investment abroad in manufacturing industries over the years (from 1981 to 1992). The paper will illustrate, with evidence, that Singapore manufacturers' FDI in (and within) the developed countries and developing countries has been determined by different criteria. Secondary data sources have been used for information gathering and all statistical testings are conducted with the aid of the Statistical Analysis System (SAS) software package. The importance of this study is twofold: First, it helps to verify the determinants of Singapore's direct investment abroad in the manufacturing industries in the various host countries. For instance, it is found that the market sizes, level of technology, growth of their economies and the appreciation of Singapore dollar have been the influencing factors of Singapore's FDI in some of the developed countries. In contrast, lower labor costs, the relocation of MNCs, the growth of their economies and the rate of return on FDI were the decisional factors of Singapore's FDI in some of the developing countries. Second, with this understanding of the factors, we can explore their implications for the Singapore economy. For instance, understanding that the outflow of FDI to less developed countries was because of cheaper tabor can help to facilitate the industrial restructuring of the Singapore economy. Also, comprehending that the move of FDI into some developed countries has been due to the latter technological advancement can help to promote Singapore to become a regional R&D center. On the other hand, the outflow of FDI to some of the developed and developing countries because of the relative appreciation of the Singapore dollar can imply the loss of our export competitiveness. Thus, whether the outflow of Singapore's FDI will benefit or harm the Singapore economy depends on the reasons for the outflow. By better understanding the determinants of Singapore's FDI in manufacturing industries abroad, it can help the government make the right policy moves and bring Singapore to a new stage of development.