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Foreign direct investment and employment in manufacturing and services sectors: Fresh empirical evidence from Singapore

  • Koi Nyen Wong
  • Tuck Cheong Tang

Purpose – This paper aims to examine both the cointegrating and causal relationships among inward FDI and the host country's employment in manufacturing and services sectors. Design/methodology/approach – This paper applies autoregressive distributed lag (ARDL) framework to test the cointegration and causality patterns using Singapore as a case. Findings – Apart from the presence of a unique long-run relationship, the findings also show evidence of long-run causality, running from employment in manufacturing and services to FDI inflows, and from FDI inflows and services employment to manufacturing employment. Furthermore, there is evidence of short-run causality showing strong FDI-employment and employment linkages, predominantly from the manufacturing to services. Research limitations/implications – One likely area of future research is to extend this paper by using disaggregated data, e.g. FDI inflows by sector (manufacturing and services), and employment by the respective sectors. Practical implications – Manufacturing and services have been regarded as the “twin engines” of growth for the Singapore economy. As the economy is moving up the value chain from downstream to upstream activities, a significant proportion of foreign direct investment (FDI) has been attracted to the manufacturing and services sectors. The present study provides useful policy implications towards promoting foreign investment in emerging areas of and manpower development in both sectors of the economy. Originality/value – This paper explores the possible interactions between FDI inflows and employment in manufacturing and services sectors as well as the employment linkages between manufacturing and services in Singapore.

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Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

Volume (Year): 38 (2011)
Issue (Month): 3 (July)
Pages: 313-330

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Handle: RePEc:eme:jespps:v:38:y:2011:i:3:p:313-330
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  1. Guerrieri, Paolo & Meliciani, Valentina, 2005. "Technology and international competitiveness: The interdependence between manufacturing and producer services," Structural Change and Economic Dynamics, Elsevier, vol. 16(4), pages 489-502, December.
  2. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
  3. T.K. Jayaraman & Baljeet Singh, 2007. "Foreign Direct Investment and Employment Creation in Pacific Island Countries: An Empirical Study of Fiji," Working Papers 3507, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
  4. 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.
  5. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  6. Greenhalgh, Christine & Gregory, Mary, 2001. " Structural Change and the Emergence of the New Service Economy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(0), pages 629-46, Special I.
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