Utilizing FDI to Stay Ahead: The Case of Singapore
A country of 5 million people in 710 km2, Singapore has built itself into an integral part of global markets with living standards that are among the highest in the world. The purpose of this article is to apply a capabilities-based approach to understand how a small, resource-scarce country dependent on global markets has done so well. The core of Singapore’s success has been the continuous updating and expanding of domestic social capabilities to meet the needs of foreign companies. Government policies were hypersensitive to providing conditions for foreign firms to be successful. Foreign firms investing in Singapore by now have helped close the income gap with advanced economies and are on the way to closing the innovation gap. Singapore demonstrates that with deliberate attention to building skills, institutions and infrastructure, it is possible for a small country to upgrade skills and to move up the production-value chain with primary reliance on foreign direct investment (FDI). Cultivation of private Singaporean firms has been secondary but may be the next step needed to sustain progress, both to respond to increased competition from China and others, and to build a knowledge-based economy.
KeywordsCapabilities-based approach Singapore Small country development Upgrading Structural change
The author wishes to thank Aaron Kosel for his research assistance and Eva Paus, Luis Abugattas, José Cordero, Esteban Pérez Caldentey, and Diego Sanchez-Ancochea for their helpful comments throughout the project.
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