Nevertheless, the trade openness of Singapore exhibits inverse linkage towards the
FDI outflow of Singapore in the long run and contradict to the findings from Kogut
(1983), Scaperlanda and Balough (1983) and Scaperlanda (1992). This may due to the
substitution effect of the trade activities against the FDI outflow of Singapore.
Singapore ranked first for the most open economy for international trade and
investment ahead of Hong Kong and Switzerland (The Global Enabling Trade Report
2009, World Economic Forum). This favorable atmosphere has attracted many
foreign firms to invest in Singapore despite attractive tax incentive and condusive
business environment. Most of the source of the foreign companies and entrepreneurs
laying operation in Singapore are from Asia and European. Subsequently, domestic
firms have the tendency to establish cooperation with the foreign companies
particularly via joint venture. As a result, this may mitigate the opportunity cost for
the domestic firms to invest abroad as they will enjoy great benefits from the
cooperation with the foreign companies in Singapore.