Effect of Foreign Direct Investment (FDI) in Economy of Singapore

Published on July 11th, 2014 by in Blog

The rapid emerging economy of Singapore over the past three decades paved the way for the utilization of funds from external sources, principally foreign capital which was in the form of aid, grants, borrowing, and direct foreign investment. In this article, we will see an overview of FDI and the FDI policy adopted in Singapore for its emerging economy.

Foreign Direct Investment (FDI):Foreign Direct Investment

Foreign Direct Investment (FDI) is a subject of tropical interest. Countries of the world, even developed economies, are vying with each other to attract foreign capital, to boost their rates of investment and also to acquire emerging technology and managerial skills. The relationship between FDI and economic development is a complex and multifaceted one, encompassing such aspects as trade, domestic savings, consumption and patterns, finance, technology, ownership of productive assets, balancing of holdings between domestic and foreign investors, strategic and development policies at the sectoral level and sustainability of the development process.


Impact of Trade liberalization on FDI:

Trade liberalization has even more important effect on the quality of FDI.several studies have shown that FDI in a highly protected environment can have a negative effect on host countries. Trade protection creates economic rents which can be captured by foreign investors and transferred abroad. In addition, since the lack of competition in host country markets it unnecessary for a parent firm to transfer the most advanced technology to its affiliate, trade protection also dampens the transfer of technology.

There is ample evidence to confirm that openness is a determinant for the attraction of investment and that greater investment encourages further openness. Therefore, the view that trade and investment go hand in hand, reinforcing one another, and that they are largely determined by a host country’s degree of openness, is by and large true.

Impact of Trade Policies on FDI:

In regard to the impact of trade policies and measures on the investment, the importance of different effects of open and protective trade policies on the type and size of FDI inflows has been emphasized. Countries with an open trade regime seem to attract more FDI than countries with a closed regime, especially in light of the fact that FDI responds not only to the trade regime but to the overall conditions of an economy.

 FDI in Singapore:

Singapore’s trade policy objective is to promote a free, open and stable multilateral trading is in Singapore’s vital interest to advance the global trade and investment liberalization agenda and ensure a strong rules-based multilateral trading system.

Singapore has benefited from the certainty and stability of the rules-based multilateral trading regime provided by the WTO which has brought greater predictability and security to the conduct of trade among nations.

Engaging Emerging Markets:

Singapore is increasingly looking to establish economic relationships with merging markets in countries such as china, India, and the Middle East. In addition, Singapore also opened trade offices and stepped up its presence in other emerging markets such as Vietnam, Russia, and Latin America.

Trade Measures:

Due to its location and well developed port facilities, Singapore’s merchandise exports include a large volume of trade which consists of re-exports. It has enhanced its position as a global trade and trans-shipment hub by improving the TradeNet System, an electronic single window for declaration of customs, to further simplify the regulations in Import and Export.

Other Trade –Related Policies:

The government of Singapore is likely to continue its focus on maintaining its appeal as a destination for FDI by reducing the statutory corporate tax rate and continuing to offer tax incentives in industries which tries to nurture such as semiconductors,IT,biotechnology and genetic engineering and services.

In addition to tax measures, Singapore is evolving with industrial policy which includes state ownership of the land ensuring that the government continuing to have a significant degree of control over the release and thus the price of industrial land.

With active implementation of Singapore’s industrial policy statutory boards, and the financial assistance, development of knowledge based sectors and value added activities for sustaining the long term growth of Singapore in the global economy is provided.

Competitive Environment and Liberalization Policies:

Competition has always played a key role in Singapore’s economic development. In 2004 it adopted a generic competition law which helps to further promote competition in its market.

Intellectual Property:

Singapore’s robust IP infrastructure and pro-IP business environment which helped to create, maintain and enhance the business climate, making Singapore a secure base for an enterprise’s entire spectrum of operations. Singapore has enjoyed consistently high international rankings for its strong and dynamic IP protection regime.


The recent statistics shows that, the stock of foreign direct investment (FDI) in Singapore amounted to $746.7 billion as at end 2012. The United States ($106.5 billion), Netherlands ($72.7 billion), British Virgin Islands ($59.3 billion) and Japan ($59.1 billion) were major sources of FDI.

The stock of direct investment abroad by the Singapore’s corporate sector stood at $462.7 billion as at end 2012. China ($90.5 billion), United Kingdom ($43.2 billion), Hong Kong ($39.2 billion) and Australia ($38.3 billion) were the major destinations of Singapore’s investment overseas. Hence, it shows the effect of FDI in growth of Singapore Economy, besides several other factors boosting for it.
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