Macroeconomic Determinants of Direct Investment Abroad of Singapore

Jerome Kueh (), Chin-Hong Puah and Venus Liew

MPRA Paper from University Library of Munich, Germany

Abstract: The objective of this study is to discover the determinants of Direct Investment Abroad (DIA) of Singapore. It also measures the impacts of various determinants on the DIA of Singapore. Based on theoretical justification, several potential determinants including aggregate income, interest rate, trade openness and exchange rate are considered in this study. Results obtained reveals that higher aggregate income will contribute to the expansion of abroad investment of Singaporean firms. Meanwhile, the increase (decrease) of DIA of Singapore is significantly related to the appreciation (depreciation) of the Singapore dollar per US dollar exchange rate in the long run. This finding is in tandem with the literature that suggests that appreciation of the home currency tends to increase the volume of abroad investment activities. Meanwhile, the current study finds the existence of inverse relationship between interest rate and DIA of Singapore in the long run. This finding is consistent with the argument that lower interest rate reflects the abundance of capital in Singapore and subsequently lowers the opportunity cost in seeking capital for DIA. In other words, these firms have competitive advantage in financing foreign investment due to lower cost of borrowing in home country. Nevertheless, trade openness of Singapore exhibits inverse linkage towards the DIA of Singapore in the long run. This may due to the substitution effect of the trade activities against the DIA of Singapore, as explained in the text. It is also discovered that exchange rate and aggregate income have larger influence on the DIA of Singapore, compared to other determinants. It is argued that the association of the ownership, location and internationalization advantages gained by Singapore has contributed to the economic development path of the country.

Keywords: Direct Investment Abroad; Economic Growth; Trade Openness; VECM; Singapore (search for similar items in EconPapers)
JEL-codes: E02 E6 (search for similar items in EconPapers)
Date: 2010, Revised 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Engineering Economics 1.25(2014): pp. 72-81

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