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Determinants of Foreign Direct Investment in Malaysia: New Evidence From Cointegration and Error Correction Model

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  • Kishor Sharma
  • James Nayagam
  • Hui Hon Chung

    (Charles Sturt University, Australia
    HELP University College, Malaysia)

Abstract

Foreign direct investment (FDI) has contributed significantly to the transformation of the Malaysian economy, as reflected by the changing composition of its exports and the rising share of FDI in gross fixed capital formation (GFCF). By the late 1990s, Malaysia ranked third after Singapore and Hong Kong (among the East Asian countries) in terms of attracting FDI. Despite this, studies on the determinants of FDI in Malaysia are scarce. This paper aims to meet this gap through a systematic econometric investigation using the cointegration and error correction model. Results suggest that openness and the quality of labor force have been the influential factors in attracting FDI to Malaysia in the long-run, while in the short-run it is quality of infrastructure that has been instrumental. These findings point to the importance of policy reforms aimed at openning up the economy, and improving the quality of labor force as well as physical infrastructure for arrtracting foreing investment in developing countries like Malaysia.

Suggested Citation

  • Kishor Sharma & James Nayagam & Hui Hon Chung, 2012. "Determinants of Foreign Direct Investment in Malaysia: New Evidence From Cointegration and Error Correction Model," Journal of Developing Areas, Tennessee State University, College of Business, vol. 46(1), pages 71-89, January-J.
    • Handle: RePEc:jda:journl:vol.46:year:2012:issue1:pp:71-89
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    References listed on IDEAS

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    Cited by:

    1. Biyase Mduduzi & Rooderick September, 2018. "Determinants of FDI in BRICS Countries: Panel Data Approach," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 63(2), pages 35-48, August.
    2. Kashif Munir & Mehwish Iftikhar, 2021. "Impact of Transport and Technological Infrastructure in Attracting FDI in Pakistan," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 7, pages 93-106.
    3. Sahiti Arben & Ahmeti Skender & Ismajli Hysen, 2018. "A Review of Empirical Studies on FDI Determinants," Baltic Journal of Real Estate Economics and Construction Management, Sciendo, vol. 6(1), pages 1-11, March.
    4. Kui Ming Tiong & Ming Yu Cheng & Chee Keong Choong, 2021. "Investment climate and foreign direct investment in Malaysia: firm‐level evidence," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 35(1), pages 108-119, May.

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    Keywords

    FDI; openness; East Asia; Malaysia;
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