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Foreign Direct Investment And Economic Growth In Malaysia: The Role Of Domestic Financial Sector

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  • CHEE-KEONG CHOONG

    ()
    (Department of Economics, Faculty of Accountancy and Management, Universiti Tunku Abdul Rahman, Lot PT 21144, Jalan Sungai Long, Bandar Sungai Long, Cheras, 43000 Kajang, Selangor D.E., Malaysia)

  • ZULKORNAIN YUSOP

    (Department of Economics, Faculty of Economics and Management, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor D.E., Malaysia)

  • SIEW-CHOO SOO

    (Department of Econometrics and Business Statistics, School of Business, Monash University Malaysia, No.2 Jalan Kolej, Bandar Sunway, 46150 Petaling Jaya, Selangor D.E., Malaysia)

Abstract

This study aims to incorporate the role of domestic financial system in transferring the technological diffusion embodied in FDI inflows on the Malaysian economy from 1970–2001. Applying bound test, or unrestricted error correction model (UECM) proposed by Pesaran et al. (2001), the presence of FDI inflows creates a positive technological diffusion in both short- and long-run if the evolution of domestic financial system has achieved a certain minimum level. This implies that the improvement of technology level in Malaysia in the long run is due to the spillover efficiency effects from FDI. Hence, the study suggests that FDI tends to be more likely to enhance economic growth more efficiently when a recipient country has a well-developed and well-functioning financial sector.

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Bibliographic Info

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal The Singapore Economic Review.

Volume (Year): 50 (2005)
Issue (Month): 02 ()
Pages: 245-268

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Handle: RePEc:wsi:serxxx:v:50:y:2005:i:02:p:245-268

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Related research

Keywords: Financial development; foreign direct investment; economic growth; bound test; technological diffusion;

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Cited by:
  1. Abdul Khaliq & Ilan Noy, 2007. "Foreign Direct Investment and Economic Growth: Empirical Evidence from Sectoral Data in Indonesia," Working Papers, University of Hawaii at Manoa, Department of Economics 200726, University of Hawaii at Manoa, Department of Economics.
  2. goh, sookhoon, 2012. "Could inward FDI offset the substitution effect of outward FDI on domestic investment? evidence from Malaysia," MPRA Paper 43237, University Library of Munich, Germany.
  3. Tang, Chor Foon, 2007. "The stability of money demand function in Japan: Evidence from rolling cointegration approach," MPRA Paper 19807, University Library of Munich, Germany.
  4. Tang, Chor Foon, 2008. "A re-examination of the role of foreign direct investment and exports in Malaysia's economic growth," MPRA Paper 38536, University Library of Munich, Germany.
  5. Jayaraman, T.K. & Choong, Chee-Keong, 2009. "Growth and oil price: A study of causal relationships in small Pacific Island countries," Energy Policy, Elsevier, Elsevier, vol. 37(6), pages 2182-2189, June.
  6. Agbloyor, Elikplimi Komla & Abor, Joshua & Adjasi, Charles Komla Delali & Yawson, Alfred, 2013. "Exploring the causality links between financial markets and foreign direct investment in Africa," Research in International Business and Finance, Elsevier, Elsevier, vol. 28(C), pages 118-134.

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