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- Title
Role of Inward Foreign Portfolio Investment in Transition of Singapore to a High Income Economy: First 25 Years.
- Authors
Lay, Lucia; Wickramanayake, Jayasinghe
- Abstract
This study empirically examines the influence of economic variables, namely, interest rates, exchange rates and scale variables on the level of inward foreign portfolio investment in Singapore for the period 1972-99. Although extensive research on inward foreign portfolio investment has been conducted on various countries, empirical research seems to be nonexistent in the context of Singapore. The results of this study, obtained from the "general-to-specific" approach using an Unrestricted Error Correction Model (UECM), indicate the existence of a long-run equilibrium relationship between all economic variables and inward foreign portfolio investment in Singapore, specifically, the economic variables-domestic interest rates (Singapore), exchange rate and domestic scale variables. Singapore's real GDP and Singapore's stock market capitalization in real terms have a positive relationship with inward foreign portfolio investment in Singapore. Conversely, foreign (USA) interest rates are negatively related to foreign portfolio investment flows into Singapore. On balance, domestic (pull) and foreign (push) factors are equally important in determining the flow of foreign portfolio investment into Singapore. One of the important policy implications of this study is that the Singapore government needs to implement appropriate policies that encourage domestic economic activity to continually attract inward foreign portfolio investment. These important changes in foreign conditions are beyond the control of a small open economy like Singapore.
- Subjects
SINGAPORE; INVESTMENTS; FOREIGN exchange rates; INTEREST rates; ECONOMIC activity
- Publication
ICFAI Journal of International Business, 2007, Vol 2, Issue 4, p7
- ISSN
0973-3752
- Publication type
Article