East Asian Economic Review

Korea Institute for International Economic Policy (대외경제정책연구원)
권호 표지
DOI QR코드

DOI QR Code

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

  • Received : 2018.10.12
  • Accepted : 2019.03.08
  • Published : 2019.06.30
Download PDF
⟨ Previous Next ⟩

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

References

  1. Ahsan, A., Abella, M., Beath, A., Huang, Y., Luthria, M. and T. V. Nguyen. 2014. International Migration and Development in East Asia and the Pacific. Washington, DC: World Bank.
  2. Alderman, H., Behrman, J. R., Lavy, V. and R. Menon. 2001. "Child Health and School Enrollment: A Longitudinal Analysis," Journal of Human Resources, vol. 36, no. 1, pp. 185-205. https://doi.org/10.2307/3069675
  3. Alpaslan, B. and A. Ali. 2018. "The Spillover Effects of Innovative Ideas on Human Capital," Review of Development Economics, vol. 22, no. 1, pp. 333-360. https://doi.org/10.1111/rode.12344
  4. Anwar, S. 2008. "Foreign Investment, Human Capital and Manufacturing Sector Growth in Singapore," Journal of Policy Modeling, vol. 30, no. 3, pp. 447-453. https://doi.org/10.1016/j.jpolmod.2007.12.008
  5. Athukorala, P.-C. and S. Narayanan. 2018. "Economic Corridors and Regional Development: The Malaysian Experience," World Development, vol. 106, pp. 1-14. https://doi.org/10.1016/j.worlddev.2018.01.009
  6. Awokuse, T. O., Maskus, K. E. and Y. An. 2012. "Knowledge Capital, International Trade and Foreign Direct Investment: A Sectoral Analysis," Economic Inquiry, vol. 50, no. 3, pp. 707-723. https://doi.org/10.1111/j.1465-7295.2011.00371.x
  7. Baltagi, B. H., Egger, P. and M. Pfaffermayr. 2007. "Estimating Models of Complex FDI: Are there Third-Country Effects," Journal of Econometrics, vol. 140, no. 1, pp. 260-281. https://doi.org/10.1016/j.jeconom.2006.09.009
  8. Baranwal, G. 2019. "Links Between Foreign Direct Investment and Human Capital Formation: Evidence from the Manufacturing Sector in India," Journal of International Trade and Economic Development, vol. 28, no. 2, pp. 137-160. https://doi.org/10.1080/09638199.2018.1508304
  9. Becker, S. O., Cinnirella, F. and L. Woessmann. 2010. "The Trade-off between Fertility and Education: Evidence from before the Demographic Transition," Journal of Economic Growth, vol. 15, no. 3, pp. 177-204. https://doi.org/10.1007/s10887-010-9054-x
  10. Behrman, J. R., Hoddinott, J. F., Maluccio, J. A., Soler-Hampejsek, E., Behrman, E. L., Martorell, R., Ramirez-Zia, M. and A. D. Stein. 2014. "What Determines Adult Cognitive Skills? Impacts of Pre-Schooling Experiences in Guatemala," Latin American Economic Review, vol. 23, no. 4.
  11. Bergstrand, J. H. and P. Egger. 2007. "A Knowledge-and-Physical-Capital Model of International Trade Flows, Foreign Direct Investment, and Multinational Enterprises," Journal of International Economics, vol. 73, no.2, pp. 278-308. https://doi.org/10.1016/j.jinteco.2007.03.004
  12. Bharadwaj, P., Loken, K. V. and C. Neilson. 2013. "Early Life Health Interventions and Academic Achievement," American Economic Review, vol. 103, no. 5, pp. 1862-1891. https://doi.org/10.1257/aer.103.5.1862
  13. Bhattacharya, R., Patnaik, I. and A. Shah. 2012. "Export Versus FDI in Services," World Economy, vol. 35, no. 1, pp. 61-78. https://doi.org/10.1111/j.1467-9701.2011.01385.x
  14. Black, S. E., Devereux, P. J. and K. G. Salvanes. 2005. "The More the Merrier? The Effect of Family Size and Birth Order on Children's Education," Quarterly Journal of Economics, vol. 120, no. 2, pp. 669-700. https://doi.org/10.1093/qje/120.2.669
  15. Blonigen, B. A., Davies, R. B. and K. Head. 2003. "Estimating the Knowledge-Capital Model of the Multinational Enterprise: Comment," American Economic Review, vol. 93, no. 3, pp. 980-994. https://doi.org/10.1257/000282803322157214
  16. Blonigen, B. A. and M. Wang. 2004. Inappropriate Pooling of Wealthy and Poor Countries in Empirical FDI Studies. In Moran, T., Graham, E. and M. Blomstrom. (eds.) Does Foreign Direct Investment Promote Development? Washington DC: Peterson Institute for International Economics. pp. 221-243.
  17. Boddewyn, J. J., Halbrich, M. B. and A. C. Perry. 1986. "Service Multinationals: Conceptualization, Measurement and Theory," Journal of International Business Studies, vol. 17, no. 3, pp. 41-57. https://doi.org/10.1057/palgrave.jibs.8490860
  18. Braconier, H., Norback, P-J. and D. Urban. 2005. "Reconciling the Evidence on the Knowledge-Capital Model," Review of International Economics, vol. 13, no. 4, pp. 770-786. https://doi.org/10.1111/j.1467-9396.2005.00536.x
  19. Carr, D. L., Markusen, J. R. and K. E. Maskus. 2001. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," American Economic Review, vol. 91, no. 3, pp. 693-708. https://doi.org/10.1257/aer.91.3.693
  20. Chellaraj, A. 2000. "Justice for Sale or Justice for All?," Manuscript. JFK School of Government, Harvard University.
  21. Chellaraj, G., Maskus, K. E. and A. Mattoo. 2013. "Labor Skills and Foreign Direct Investment in a Dynamic Economy: Estimating the Knowledge-Capital Model for Singapore," Review of Development Economics, vol. 17, no. 4, pp. 627-643. https://doi.org/10.1111/rode.12055
  22. Chin, L. 2008. Facility Management in Singapore: Training and Education. Paper Presented at the 14th Pacific Rim Real Estate Conference, Kuala Lumpur, Malaysia, January 20-23, 2008.
  23. Cieslik, A. and L. Goczek. 2018. "Control of Corruption, International Investment, and Economic Growth - Evidence from Panel Data," World Development, vol. 103, pp. 323-335. https://doi.org/10.1016/j.worlddev.2017.10.028
  24. Constantinescu, C., Mattoo, A., Ruta, M. 2018. "Trade in Developing East Asia: How It Has Changed and Why It Matters," East Asian Economic Review, vol. 22, no. 4, pp. 427-465. https://doi.org/10.11644/KIEP.EAER.2018.22.4.350
  25. Dollar, D., Hallward-Driemeier, M. and T. Mengistae. 2004. Investment Climate and International Integration. World Bank Policy Research Working Paper, no. 3323.
  26. Dove, J. A. 2016. "Judicial Independence and Economic Freedom in the US States," Applied Economic Letters, vol. 23, no. 1, pp. 78-83. https://doi.org/10.1080/13504851.2015.1051649
  27. Egger, P. and M. Pfaffermayr. 2005. "Trade, Multinational Sales, and FDI in a Three-Factor Model," Review of International Economics, vol. 13, no. 4, pp. 659-675. https://doi.org/10.1111/j.1467-9396.2005.00529.x
  28. Fageda, X. 2017. "International Air Travel and FDI Flows: Evidence from Barcelona," Journal of Regional Science, vol. 57, no. 5, pp. 858-883. https://doi.org/10.1111/jors.12325
  29. Feng, X., Lin, F. and C. S. Sim. 2019. "The Effect of Language on Foreign Direct Investment," Oxford Economic Papers, vol. 71, no. 1, pp. 269-291. https://doi.org/10.1093/oep/gpy034
  30. Gao, T. 2003. "Ethnic Chinese Networks and International Investment: Evidence from Inward FDI in China," Journal of Asian Economics, vol. 14, no. 4, pp. 611-629. https://doi.org/10.1016/S1049-0078(03)00098-8
  31. Gootiiz, B. and A. Mattoo. 2017. "Regionalism in Services: A Study of ASEAN," World Economy, vol. 40, no. 3, pp. 574-597. https://doi.org/10.1111/twec.12328
  32. Glewwe, P., Jacoby, H. G. and E. M. King. 2001. "Early Childhood Nutrition and Academic Achievement: A Longitudinal Analysis," Journal of Public Economics, vol. 81, no. 3, pp. 345-368. https://doi.org/10.1016/S0047-2727(00)00118-3
  33. Hanushek, E. A. and L. Woesmann. 2015. The Knowledge Capital of Nations: Education and the Economics of Growth. Cambridge, MA: The MIT Press.
  34. Helpman, E. 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, vol. 92, no. 3, pp. 451-471. https://doi.org/10.1086/261236
  35. Jones, G. and H.-H. Shen. 2008. "International Marriage in East and Southeast Asia: Trends and Research Emphases," Citizenship Studies, vol. 12, no. 1, pp. 9-25. https://doi.org/10.1080/13621020701794091
  36. Kawai, M. and K. Naknoi. 2017. "ASEAN's Trade and Foreign Direct Investment: Long-Term Challenges for Economic Integration," Singapore Economic Review, vol. 62, no. 3, pp. 643-680. https://doi.org/10.1142/S0217590818400040
  37. Lankhuizen, M. 2014. "The (Im)possibility of Distinguishing Horizontal and Vertical Motivations of FDI," Review of Development Economics, vol. 18, no. 1, pp. 139-151. https://doi.org/10.1111/rode.12074
  38. Lee, J.-H., Jeong, H. and S. C. Hong. 2018. Human Capital and Development Lessons and Insights from Korea's Transformation (KDI Series in Economic Policy and Development). Northampton, MA: Edward Elgar.
  39. Lee, S.-B., Shin, D.-W. and H. K. Lee. 1998. "FDI Promotion Policies in the United Kingdom, Singapore and Malaysia: Lessons for Korea," East Asian Economic Review, vol. 2, no. 4, pp. 157-187. (in Korean)
  40. Lomer, S. 2018. "UK Policy Discourses and International Student Mobility: The Deterrence and Subjectification of International Students," Globalisation, Societies and Education, vol. 16, no. 3, pp. 308-324. https://doi.org/10.1080/14767724.2017.1414584
  41. Lulle, A., King, R., Dvorakova, V. and A. Szkudlarek. 2019. "Between Disruptions and Connections: "New" European Union Migrants in the United Kingdom Before and After the Brexit," Population, Space and Place, vol. 25, no. 1, e2200. https://doi.org/10.1002/psp.2200
  42. Mariel, P., Orbe, S. and C. Rodriguez. 2009. "The Knowledge-Capital Model of FDI: A Time Varying Coefficients Approach," Scottish Journal of Political Economy, vol. 56, no. 2, pp. 196-212. https://doi.org/10.1111/j.1467-9485.2009.00480.x
  43. Markusen, J. R. 1984. "Multinationals, Multi-Plant Economies, and the Gains from Trade," Journal of International Economics, vol. 16, no. 3-4, pp. 205-226. https://doi.org/10.1016/S0022-1996(84)80001-X
  44. Markusen, J. R. 2002. Multinational Firms and the Theory of International Trade. Cambridge, MA: The MIT Press.
  45. Markusen, J. R. and K. E. Maskus. 2002. "Discriminating Among Alternative Theories of the Multinational Enterprise," Review of International Economics, vol. 10, no. 4, pp. 694-707. https://doi.org/10.1111/1467-9396.00359
  46. Markusen, J. R. and B. Strand. 2009. "Adapting the Knowledge-Capital Model of the Multinational Enterprise to Trade and Investment in Business Services," World Economy, vol. 32, no. 1, pp. 6-29. https://doi.org/10.1111/j.1467-9701.2009.01155.x
  47. Mathews, J. A. and M. C. Hu. 2007. "Enhancing the Role of Universities in Building National Innovative Capacity in Asia: The Case of Taiwan," World Development, vol. 35, no. 6, pp. 1005-1020. https://doi.org/10.1016/j.worlddev.2006.05.012
  48. Nordas, H. K. 2018. "What Drives Trade in Services? Lessons from the Nordics," Applied Economics, vol. 50, no. 33, pp. 3532-3545. https://doi.org/10.1080/00036846.2018.1430334
  49. Perry, J. C. 2017. Singapore: Unlikely Power. Oxford: Oxford University Press.
  50. Phyo, E. E., Goto, H. and M. Kakinaka. 2019. "International Migration, Foreign Direct Investment, and Development Stage in Developing Economies," Review of Development Economics, vol. 23, no. 2, pp. 940-956. https://doi.org/10.1111/rode.12577
  51. Ramasamy, B. and M. Yeung. 2010. "The Determinants of Foreign Direct Investment in Services," World Economy, vol. 33, no. 4, pp. 573-596. https://doi.org/10.1111/j.1467-9701.2009.01256.x
  52. Rosenzweig, M. R. and T. P. Schultz. 1987. "Fertility and Investments in Human Capital: Estimates of the Consequences of Imperfect Fertility Control in Malaysia," Journal of Econometrics, vol. 36, no.1-2, pp. 163-184. https://doi.org/10.1016/0304-4076(87)90048-0
  53. Shin, J.-S. 2005. "The Role of State in the Increasingly Globalized Economy: Implications for Singapore," Singapore Economic Review, vol. 50, no. 1, pp.103-116. https://doi.org/10.1142/S0217590805001895
  54. Sim, N. 2015. "Astronomics in Action: The Graduate Earnings Premium and the Dragon Effect in Singapore," Economic Inquiry, vol. 53, no. 2, pp. 922-939. https://doi.org/10.1111/ecin.12154
  55. Storper, M. and A. J. Venables. 2004. "Buzz: Face-to-Face Contact and the Urban Economy," Journal of Economic Geography, vol. 4, no. 4, pp. 351-370. https://doi.org/10.1093/jnlecg/lbh027
  56. Tanaka, K. 2009. Re-estimating the Knowledge-Capital Model: Evidence from Japanese and US Multinational Enterprises. Global COE Hi-Stat Discussion Paper Series, no. 87. Tokyo: Faculty of Economics, Hitotsubashi University.
  57. Tanaka, K. 2016. Do International Flights Promote FDI? The Role of Face to Face Communication. IDE Discussion Paper, no. 554. Chiba: Institute of Developing Economies.
  58. Thangavelu, S. M. 2015. FDI Restrictiveness Index for ASEAN: Implementation of AEC Blueprint Measures. ERIA Discussion Paper Series, no. ERIA-DP-2015-43.
  59. Thangavelu, S. M. and D. Narjoko. 2014. "Human Capital, FTAs and Foreign Direct Investment Flows into ASEAN," Journal of Asian Economics, vol. 35, pp. 65-76. https://doi.org/10.1016/j.asieco.2014.11.002
  60. Waldkirch, A. 2010. "The Structure of Multinational Activity: Evidence from Germany," Applied Economics, vol. 42, no. 24, pp. 3119-3133. https://doi.org/10.1080/00036840801964872
  61. Williams, B. 1997. "Positive Theories of Multinational Banking: Theory Versus Internationalization Theory," Journal of Economic Surveys, vol. 11, no. 1, pp. 71-100. https://doi.org/10.1111/1467-6419.00024
  62. Yin, F., Ye, M. and L. Xu. 2014. Location Determinants of Foreign Direct Investment in Services: Evidence from Chinese Provincial Data. Asia Research Center Working Paper, no. 64, London School of Economics.
  63. Yusuf, S. and K. Nabeshima. 2012. Some Small Countries Do It Better: Rapid Growth and Its Causes in Singapore, Finland and Ireland. Washington DC: World Bank.
  64. Ziguras, C. and C. Gribble. 2015. "Policy Responses to Address Student "Brain Drain": An Assessment of Measures Intended to Reduce the Emigration of Singaporean International Students," Journal of Studies in International Education, vol. 19, no. 3, pp. 246-264. https://doi.org/10.1177/1028315314561121