FOREIGN DIRECT INVESTMENT AND SERVICES TRADE: EVIDENCE FROM MALAYSIA AND SINGAPORE

Koi Wong, Tuck Cheong Tang () and Dietrich Fausten

No 30-07, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: Services trade is an important source of growth in Malaysia and Singapore. Both economies are export-oriented and actively court foreign direct investment (FDI) to advance their economic objectives of industrialisation and economic development. This paper examines the causal linkages between inward FDI and the country’s engagement in services trade in bi-variate and tri-variate VAR frameworks. The empirical findings for Singapore show evidence of bidirectional causality between inward FDI and the total trade volume in services (i.e. the absolute sum of payments and receipts) as well as between FDI and services imports (in the tri-variate specification). This may reflect her relative open foreign investment policy and free trade regime in services. For Malaysia, the evidence of causality is weaker and unidirectional, from inward FDI to services imports. These findings are consistent with the different stages of economic development and openness attained by the two sample countries, and they provide useful background for trade and foreign investment policies and development strategies.

Keywords: Causality; services trade; foreign direct investment (search for similar items in EconPapers)
JEL-codes: C22 F21 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2007
New Economics Papers: this item is included in nep-sea
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Foreign Direct Investment and Services Trade: Evidence from Malaysia and Singapore (2009)
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