Hypergrowth in an East Asian NIC: Public policy and capital accumulation in Singapore

Singapore has produced the world's highest investment ratios, known to acco unt for growth more rapid than in any other less-developed country over the past three decades, but such high investment needs explanation. We trace S ingapore's public policy of increasing tax concessions and infrastructural spending-in effect subsidies to private firms-and use an open-economy, neoc lassical model to show how, by attracting "footloose" foreign capital and r aising investment levels, these policy measures can drive growth. The conse quent transformation of living standards in Singapore suggests, in accordan ce with theory but contrary to most practice, that for some less-developed countries effectively zero tax on foreign direct investment may be a benefi cial strategy. Yet for both Singapore and other would-be late industrialize rs, major issues of development strategy arise from the kind of input-drive n growth analyzed in this article. (C) 1998 Elsevier Science Ltd. All right s reserved.