Estimating the Knowledge Capital Model for Foreign Investment in Services: The Case of Singapore

East Asian Economic Review Vol. 23, No. 2 (June 2019) 111-147, DOI: 10.11644/KIEP.EAER.2019.23.2.358

Korea Institute for International Economic Policy (KIEP) Research Paper Series

37 Pages Posted: 3 Jul 2019

See all articles by Gnanaraj Chellaraj

Gnanaraj Chellaraj

World Bank

Aaditya Mattoo

World Bank - Development Research Group (DECRG)

Date Written: June 30, 2019

Abstract

Singapore’s inward and outward investments with industrialized countries in both manufacturing and service sectors were skill seeking while outward investments to developing countries were labor seeking. Applying the Knowledge-Capital model, it was found that services Foreign Direct Investment is sensitive to skill differences. A ten percent decline in skill differences with industrialized countries resulted in a 4.25 percent rise in inbound manufacturing and 1.48 percent rise in inbound services investments. Meanwhile, a ten-percent increase in skill differences with developing countries resulted in a 30 percent rise in outbound manufacturing and 0.38 percent rise in services investments. Furthermore, when services are distinguished by skill-intensity, the impact of relative skill endowments on inbound Foreign Direct Investment in skill-intensive services is significantly different from the impact on other services. However, when services are disaggregated by “proximity” needs, we do not find any significant difference in the impact of relative skill endowments on Foreign Direct Investment.

Keywords: Foreign Direct Investment, Manufacturing; Services, Skills, Proximity

JEL Classification: F00, F21, I25

Suggested Citation

Chellaraj, Gnanaraj and Mattoo, Aaditya, Estimating the Knowledge Capital Model for Foreign Investment in Services: The Case of Singapore (June 30, 2019). East Asian Economic Review Vol. 23, No. 2 (June 2019) 111-147, DOI: 10.11644/KIEP.EAER.2019.23.2.358; Korea Institute for International Economic Policy (KIEP) Research Paper Series. Available at SSRN: https://ssrn.com/abstract=3413368 or http://dx.doi.org/10.2139/ssrn.3413368

Gnanaraj Chellaraj (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Aaditya Mattoo

World Bank - Development Research Group (DECRG) ( email )

1818 H Street, N.W.
Room MC 3-327
Washington, DC 20433
United States
202-458-8047 (Phone)
202-676-9810 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/amattoo

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