For four decades, Singapore had relied on an open-door industrial policy of welcoming foreign investors to set up new businesses in the country for export substitution. In the initial years, the importance of foreign direct investment (FDI) to Singapore’s economy was starkly obvious. One advantage that accompanied FDI inflow was the fact that its impact on economic growth and employment was rapid since foreign firms were more established and hence brought about considerable increases in production and besides, they were well-connected to world markets (Te Velde, 2001; Lall, 2000; Krause, 1987). It was generally felt that Singapore’s continued reliance on FDI was laudable, since it also provided a good indicator of keeping in check the effectiveness of the country’s industrial policy. The thinking was that should there be any bad industrial policy resulting in a deterioration of business climate vis-à-vis regional economies, the international companies, especially the MNCs would immediately “punish” Singapore through a lowering of FDI. So, the FDI-centred strategy allows less room for policy mistakes and in a way, demands strict discipline from the policy-makers to act responsively to changing conditions and opportunities or stands to lose foreign investments and export revenue. The government thus aggressively mounted efforts to attract foreign direct investments (FDI) into Singapore, especially from the developed world through a host of liberal investment incentives (Goh, 2004b; Te Velde, 2001). As far as the inflow of foreign direct investments (FDI) was concerned, Singapore has indeed performed relatively well in comparison with regional economies. Based on the FDI Performance Index of 140 economies, which ranked countries by foreign direct investments (FDI) received relative to economic size as a ratio of the country’s share of global FDI inflow to its share in global gross domestic product (GDP), Singapore was ranked sixth or better since early 2000s. The ranking placed Singapore ahead of even some OECD countries that were traditionally hailed as leading FDI performers. But increasingly, countries like Singapore are now facing intense competition from Northeast Asia ( China and India, in particular) for FDI from world’s major investors. For this reason, huge spending on FDI promotion has to continue and Singapore ’s industrial policy needs to further differentiate the country as a “premier FDI location” through efficient infrastructures, minimum ownership restrictions and high value-added business services.
In the 1990s, as Singapore’s economic development became increasingly dependent on globalisation, the government began to place greater emphasis on the importance of international trade (Hamilton-Hart, 2000; Kim and Lau, 1994). Industrial policies were thus aligned with the objective of enhancing global trade to speed up the country’s industrialisation process and as a result, transit into a globalised economy. With new opportunities offered by freer global trade, the government embarked on programmes to encourage Singapore’s firms to trade overseas. One good example is the “internationalisation drive” to export Singapore's products and services to other parts of Asia. To address the new challenges (e.g. protection of intellectual property rights) facing industrialisation efforts in anticipation of increased global trade, the Singapore government also concluded Free Trade Agreements (FTAs) with the United States, Japan, Australia, New Zealand and the European Free Trade Association (Goh, 2004b). With Singapore's increasing FTA portfolio keeping its trading activity buzzing, Singapore's direct investments overseas rose from US$13 billion in 1992 to US$86 billion in just one decade; and these investments now accounted for more than 27 percent of Singapore's domestic trade (Soh, 2004). This policy of open regionalism continued to benefit Singapore as it presses for further rounds of talks at the World Trade Organisation (WTO) while simultaneously pursuing bilateral and regional initiatives with other countries and blocs. As more FTAs are established, industries not only derive cost savings from lower tariffs, but also stand to gain from better market accessibility, enhanced investment opportunities and knowledge-intensive commercial activities. In fact, the government has also acknowledged that a significant amount of its wealth created in Singapore came from international markets; and this strong international dependence had perhaps been the guarantee for the country’s success in implementing high growth industrial policies over the years. Besides, being strongly interconnected and closely linked to international markets is probably the best way to benchmark the country’s competitiveness against the world’s high performing rivals.
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