Singapore's experience in ASEAN: the nature off trade and inward investment

Abstract

An attempt is made to examine the importance of the Pacific region to the economy of Singapore, using several standard methodologies in the international economics literature. Singapore's trade with and investment flows from the 'region' have been increasing significantly, while its interaction with Europe has diminished. Hence, in light of these developments, it is useful to explore the links between Singapore and the Pacific region, especially with respect to ASEAN. The trade aspect of the theses has been based on models developed by Balassa, who used them in an attempt to analyse the growth and development of the European Community. Firstly, in analysing the changing comparative advantage in the region, a measure of revealed comparative advantage is adopted, Balassa's export specialisation ratio (1965). Secondly, the changing pattern of trade in manufactured goods is examined in relation to changing country characteristics by the use of an econometric technique - ordinary least squares - (Balassa 1979). Then, using a measure of intra- industry trade (Grubel and Lloyd 1975), the figures are examined for ASEAN along with a study of intra-industry trade by commodity group for Singapore. Balassa's method of estimating trade creation and trade diversion (1963), is used in order to test the effectiveness of economic cooperation in ASEAN. Singapore adopted an open strategy towards Foreign Direct Investment (FDl). The effects on Singapore can be conveniently reviewed under the standard industrial economics format of structure, conduct and performance. Using Dunning's adaption of the 'industrial organisation approach' (1973), it is possible to show, by examining the statistical relationship between a number of structural variables and the sectoral distribution within the manufacturing industry (correlation technique - bivariate normal distribution), that the ownership advantages of multinational corporations have assisted Singapore's economic restructuring towards Higher allocative and technical efficiency; and that multinational corporations have adjusted to the changing locational advantages of Singapore's resource endowments rather more positively than national firms.