The Effect of Foreign Direct Investment, Exports and Employment on Economic Growth Model

Economic growth is very important for a country’s developing. In economics, there are many components that affect a country's economic growth. Malaysia has undergone some changes in the structure of the economy since attaining the status of developing countries from the third world status since 1970-an. Hence, this study is conducted to identify the relationship between economic growth and others macroeconomics variables in Malaysia. There are three variables selected in this study; foreign direct investment, exports and employment. While economic growth is represented by the gross domestic product (GDP) variable. The study adopted ordinary least squares (OLS) method in order to develop the estimating modelling. This study applies annual time series data starting 1982 until 2014. The result shows that, exports and employment variables are important in influencing the economic growth in Malaysian in the long term. In contrast, the foreign direct investment variables are not important in influencing economic growth in Malaysia. According to diagnostic testing, the result further suggest that, first model is suffer of serious multicollinearity problem and second model survive of all diagnostic testing. Therefore the estimating models proposed in this study are robust.