Labor Skills and Foreign Investment in a Dynamic Economy : Estimating the Knowledge-Capital Model for Singapore

Abstract

Singapore is an interesting example of how the pattern of foreign investment changes with economic development. The authors analyze inbound and outbound investment between Singapore and a sample of industrialized and developing countries over the period 1984-2003. They find that Singapore s two-way investment with industrialized nations has shifted into skill-seeking activities over the period, while Singapore s investments in developing countries have increased sharply and become concentrated in labor-seeking activities. Singapore s increasing skill abundance relative to all countries in the sample accounted for 41 percent of average inbound stocks during the period, that is, US$18 billion annually; the corresponding figure for outbound stocks was 40 percent, that is, US$5.51 billion annually.