Macroeconomic Determinants of Direct Investment Abroad of Singapore

  • Jerome Swee-Hui Kueh Universiti Malaysia Sarawak
  • Chin-Hong Puah Universiti Malaysia Sarawak
  • Venus Khim-Sen Liew Universiti Malaysia Sarawak
Keywords: Direct Investment Abroad, Economic Growth, Trade Openness, VECM, Singapore


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 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 reveal 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 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 DIA of Singapore in the long run. This may by due to the substitution effect of the trade activities against DIA of Singapore, as explained in the text. It is also discovered that exchange rate and aggregate income have larger influence on DIA of Singapore, compared to other determinants. It is argued that the association of the ownership, location and internationalization advantages gained by Singapore contributed to the economic development path of the country.