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Foreign Direct Investment And Services Trade: Evidence From Malaysia And Singapore

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  • Koi Nyen Wong
  • Tuck Cheong
  • Dietrich K. Fausten

Abstract

Services trade is an important source of growth in Malaysia and Singapore. Both economies are export-oriented and actively court foreign direct investment (FDI) to advance their economic objectives of industrialisation and economic development. This paper examines the causal linkages between inward FDI and the country’s engagement in services trade in bi-variate and tri-variate VAR frameworks. The empirical findings for Singapore show evidence of bidirectional causality between inward FDI and the total trade volume in services (i.e. the absolute sum of payments and receipts) as well as between FDI and services imports (in the tri-variate specification). This may reflect her relative open foreign investment policy and free trade regime in services. For Malaysia, the evidence of causality is weaker and unidirectional, from inward FDI to services imports. These findings are consistent with the different stages of economic development and openness attained by the two sample countries, and they provide useful background for trade and foreign investment policies and development strategies.

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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 30-07.

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Length: 17 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:mos:moswps:2007-30

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Keywords: Causality; services trade; foreign direct investment;

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  1. Penélope Pacheco-López, 2005. "Foreign Direct Investment, Exports and Imports in Mexico," The World Economy, Wiley Blackwell, vol. 28(8), pages 1157-1172, 08.
  2. James R. Markusen & Thomas F. Rutherford & David Tarr, 2000. "Foreign Direct Investments in Services and the Domestic Market for Expertise," NBER Working Papers 7700, National Bureau of Economic Research, Inc.
  3. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Universite de Montreal, Departement de sciences economiques.
  4. Alguacil, Ma. Teresa & Cuadros, Ana & Orts, Vicente, 2002. "Foreign direct investment, exports and domestic performance in Mexico: a causality analysis," Economics Letters, Elsevier, vol. 77(3), pages 371-376, November.
  5. repec:ebl:ecbull:v:6:y:2007:i:14:p:1-8 is not listed on IDEAS
  6. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  7. repec:ebl:ecbull:v:06:y:2007:i:14:p:1-8 is not listed on IDEAS
  8. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
  9. BAI, Jushan & PERRON, Pierre, 1998. "Computation and Analysis of Multiple Structural-Change Models," Cahiers de recherche 9807, Universite de Montreal, Departement de sciences economiques.
  10. Philippa Dee & Kevin Hanslow, 2002. "Multilateral liberalisation of services trade," International Trade 0207002, EconWPA.
  11. Tuck Cheong Tang & Koi Nyen Wong, 2007. "Foreign Direct Investment and Electronics Exports: Exploratory Empirical Evidence from Malaysia's Top Five Electronics Exports," Economics Bulletin, AccessEcon, vol. 6(14), pages 1-8.
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