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Foreign direct investment, financial development, and economic growth: the case of Malaysia

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  • Chee-Keong Choong
  • Kian-Ping Lim

Abstract

This paper presents, within an endogenous growth model, an analysis of the interaction between foreign direct investment (FDI) and financial development in promoting Malaysia's economic growth. Using a co-integration framework, this study estimates a dynamic endogenous growth function that includes the impact of FDI and financial sector evolution as well as some locational determinants for the sample period spanning from 1970 to 2001. The empirical evidence suggests that foreign direct investment, labour, investment, and government expenditure play a pivotal role in local economic prosperity. More importantly, it is found that the interaction between FDI and financial development exerts a significant effect on the growth performance of Malaysia. Perhaps the strongest result to emerge from our study is the significant role played by FDI-finance interaction in the growth process.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Macroeconomics and Finance in Emerging Market Economies.

Volume (Year): 2 (2009)
Issue (Month): 1 ()
Pages: 13-30

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Handle: RePEc:taf:macfem:v:2:y:2009:i:1:p:13-30

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Related research

Keywords: foreign direct investment; financial development; economic growth;

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Cited by:
  1. Monal Abdel-Baki, 2011. "The efficacy of the Egyptian bank reform plan in mitigating the impact of the global financial crisis," Economic Change and Restructuring, Springer, vol. 44(3), pages 221-241, August.
  2. Aviral Kumar Tiwari & Mihai Mutascu, 2011. "Economic Growth and FDI in Asia: A Panel-Data Approach," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 41(2), pages 173-187, September.
  3. Muhammad Shahbaz & Mohammad Mafizur Rahman, 2012. "The Dynamic of Financial Development, Imports, Foreign Direct Investment and Economic Growth: Cointegration and Causality Analysis in Pakistan," Global Business Review, International Management Institute, vol. 13(2), pages 201-219, June.
  4. Muhammad, Shahbaz, 2012. "Does Trade Openness Affect Long Run Growth? Cointegration, Causality and Forecast Error Variance Decomposition Tests for Pakistan," MPRA Paper 37391, University Library of Munich, Germany, revised 10 Mar 2012.
  5. Shahbaz, Muhammad & Mohammad, Mafizur Rahman, 2014. "The Dynamics of Exports, Financial Development and Economic Growth in Pakistan: New Extensions from Cointegration and Causality Analysis," MPRA Paper 53225, University Library of Munich, Germany, revised 19 Jan 2014.

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