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The Determinants Of Overseas Direct Investment From Singapore

Okposin, Samuel B. and Kanbur, M. G. (1996) The Determinants Of Overseas Direct Investment From Singapore. Asia-Pacific Development Journal | United Nations ESCAP, 3 (1). pp. 55-71.

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Abstract Purpose: Economists and international development agencies have characterised Singapore’s economic miracle as a success story of international trade and foreign direct investment (FDI). This paper examines the main determinants of FDI and investigates the behaviour of Singapore’s overseas direct investment and identifies its direct investment strategies, strengths and weakness. Method: The methodology that is adopted for this study is a reformulated Kojima model of FDI. Based on primary data gathered in Singapore, four hypotheses were tested. First, there is a correlation between FDI and profitability. Empirically, the analysis of this hypothesis is based on the simple ordinary least square’s (OLS) regression of FDI on profitability. Second, the motivations of Singapore-based firms for FDI are determined by certain “push” and “pull” factors. The results from Spearman’s rank correlation coefficient tests are used to examine the relative difference between foreign and local investment decisions. Third, investing abroad entails a large initial cost of search and investigation and therefore overseas direct investment will be carried out mainly by large firms or by firms with monopolistic advantage. A cross-tabulation is used to show the difference between foreign TNCs in Singapore that claim to posses monopolistic advantages and local firms that are small in size and as such, respond only to macroeconomic determinants of FDI. Fourth, the strengths of Singapore's firms lie in their ability to engage in joint ventures and minority stake projects. The results of the Chi-square are used to show the mean distribution of each group of investors. Result: The analysis shows that profitability, a limited domestic market, product diversification and risks, labour shortage, trade barriers, culture and religion and tax incentives are some of the main determinants of overseas direct investment from Singapore. The approach offers useful findings for FDI policy in general and is amenable to further analytical extension.

Item Type: Article
Subjects: H Social Sciences > HA Statistics
H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HF Commerce
H Social Sciences > HJ Public Finance
Divisions: Faculty of Law, Arts and Social Sciences > School of Social Sciences
Depositing User: Dr Samuel B. Okposin
Date Deposited: 31 Mar 2015 09:56
Last Modified: 31 Mar 2015 09:56

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