A critical analysis of the objectives, strategies and future directions on FDI: A Case of Singapore

ABSTRACT

Beginning in the mid-1980s, world foreign direct investment (FDI) flows increased rapidly with a growing number of multinational enterprises (MNEs) as the engine of the increased international economic activities. Both industrialised and developing countries are becoming more receptive to FDI flows such that a majority of FDI policy changes in these countries are in the direction of more liberalisation of FDI inflows (United Nations, 1992).

This paper attempts to examine the impact of export performance and scale economies on productivity growth in the manufacturing industries in Singapore. Using data from ten major industries in Singapore's manufacturing sector, the results in this paper indicate that export growth affects productivity significantly for industries as a whole. In fact, productivity growth appears to be statistically unaffected by changes in either scale economies or export growth for the non-FDI industries.



TABLE OF CONTENTS

ABSTRACT2

1.INTRODUCTION5

1.1. Objectives of the Study5

1.2. LIMITATIONS OF STUDY6

1.3. METHODOLOGY7

2.LITERATURE REVIEW8

2.1. COUNTRY FACTORS IN FDI12

2.2. DETERMINANTS AND EFFECTS OF FDI13

2.3. FREE TRADE THEORY14

2.4. ENTRY STRATEGIES AND MODES20

3.SINGAPORE'S OBJECTIVE IN ENCOURAGING INWARD AND OUTWARD FDI20

3.1. OBJECTIVES FOR INWARD FDI21

3.2. OBJECTIVES FOR OUTWARD FDI21

4 STRATEGIES ADOPTED BY SINGAPORE TO ENCOURAGE INWARD AND OUTWARD FDI23

4.1. STRATEGIES TO ENCOURAGE INWARD FDI23

4.2. STRATEGIES TO ENCOURAGE OUTWARD FDI27

5 OUTCOMES OF PERFORMANCE34

5.1. INWARD FDI38

5.2. OUTWARD FDI41

6 CHALLENGES FACING THE FUTURE OF INWARD AND OUTWARD FDI IN SINGAPORE44

6.1. INWARD FDI44

6.2. OUTWARD FDI46

7 RECOMMENDATIONS FOR SINGAPORE'S FUTURE FDI EFFORT49

7.1. INWARD FDI49

7.2. OUTWARD FDI55

8 CONCLUSION57

References60

Appendix69

INTRODUCTION

1.1. Objectives of the Study

The objectives of this study is to:

Discuss the market structure of Singapore

Highlight the role of FDI in Singaporean Economy

Discuss the policies of Singaporean government to attract FDI

Discuss the inward and outward flow of FDI

Although FDI flows and stocks are concentrated mostly in industrialised countries (Lucas, 1990), developing countries, especially in the Asia-Pacific region, recently showed a noticeable increase in their absorption of world FDI flows (United Nations, 1992, 1995) . Thus, FDI in the recent period has become the principal source for external capital for many developing countries, particularly in Asia.

For Singapore, a recent study by Kim and Hwang (2000) investigates the role of FDI in economic growth by focusing on productivity spillover effects in the Singaporean manufacturing industry. They examine this by employing a random effects model using the annual data of six sub-sectors and find that FDI had positive, although statistically insignificant, effects on the productivity of the Singaporean manufacturing sector during 1970-1996.

1.2. LIMITATIONS OF STUDY

Focusing in this case means that the marketers limit their actions to a restricted number of segments of investors. Whilst it is necessary that Singaporean governments increase funds for marketing their countries to FDI, it is also obvious that they are not able to compete with the big players in the market who offer good investment environments, large assortment of services, and spend several millions in advertisement. In this context, the experience of Asia has proven that targeting foreign businesses already operating in the host country can be useful to increase FDI without ...