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Foreign Direct Investment and Economic Growth: Cointegration Techniques

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  • Idris Jajri

Abstract

Foreign Direct Investment (FDI) has been considered as one of the major factors underlying the economic growth experienced by many developing countries. In Malaysia, FDI has played an important role not only in stimulating economic growth, but has also contributed significantly to the growth of the industrial sector and the transformation of the Malaysian economic structure from agricultural to a major producer and exporter of manufactured goods. However, the race for FDI has become increasingly competitive, especially in view of the emergence of China as a new destination for FDI. This paper examines the influence of FDI on the growth of Malaysia for the period 1970-2003. It is found that FDI has significant influence on the growth rate of the Malaysian economy. In addition, multiple regression analyses are performed to determine the relationship between the specific determinants and FDI inflow to the country. The results of the FDI determinants model, firstly, reveal the existence of a long-run relationship between FDI and the variables involved; and secondly, that GDP, exchange rate, public development expenditure, openness of the economy and labor cost have a direct impact on FDI.

Suggested Citation

  • Idris Jajri, 2009. "Foreign Direct Investment and Economic Growth: Cointegration Techniques," The IUP Journal of Managerial Economics, IUP Publications, vol. 0(3-4), pages 7-18, August-No.
    • Handle: RePEc:icf:icfjme:v:07:y:2009:i:3-4:p:7-18
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    Cited by:

    1. Katiuscia Vaccarini, 2014. "Psychic distance and FDI: the case of China," Working Papers 1403, c.MET-05 - Centro Interuniversitario di Economia Applicata alle Politiche per L'industria, lo Sviluppo locale e l'Internazionalizzazione.
    2. Gulcin Elif Yucel, 2014. "FDI and Economic Growth: The Case of Baltic Countries," Research in World Economy, Research in World Economy, Sciedu Press, vol. 5(2), pages 115-134, September.
    3. Faik Bilgili & Nadide S. Tülüce & Ibrahim Doğan & H. Hilal Bağlıtas, 2016. "The causality between FDI and sector-specific production in Turkey: evidence from threshold cointegration with regime shifts," Applied Economics, Taylor & Francis Journals, vol. 48(5), pages 345-360, January.
    4. Bee Wah Tan & Chor Foon Tang, 2016. "Examining the Causal Linkages among Domestic Investment, FDI, Trade, Interest Rate and Economic Growth in ASEAN-5 Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 6(1), pages 214-220.

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