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Malaysia’s Outward FDI: The Effects of Host Market Size and Home Government Policy

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  • Soo Khoon Goh
  • Koi Nyen Wong

Abstract

This study estimates the possible determinants of outward FDI from Malaysia by introducing host market size and home government policy on capital outflows using multivariate cointegration and error-correction modeling techniques. The empirical results indicate that there is a positive long-run relationship between Malaysia’s outward FDI and its key determinants, viz. foreign market size, real effective exchange rate, international reserves and trade openness. In order to capitalize on globalization, the main findings suggest that apart from the market-seeking incentive and the adoption of outward-oriented policies, the Malaysian government could also encourage outward FDI by implementing liberal policy on capital outflows. However, this can pose a dilemma to the economy. On one hand, encouraging FDI outflows may tend to retard domestic investment seeing that it has been an important source of economic growth over the last three decades. On the other hand, restricting FDI outflows could discourage potential Malaysian multinational corporations from seizing opportunities abroad and to become regional and international players in the long run. The present study has important policy implications for the country’s economic development and the internationalization of Malaysian firms in the era of globalization.

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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 33-10.

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Length: 20 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:mos:moswps:2010-33

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Keywords: Outward FDI; Malaysia;

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Cited by:
  1. Pornpen Sodsrichai & Sakkapop Panyanukul & Nantaporn Pongpatthananon, 2011. ""Putting All Eggs in One Basket" Thailand's Under-Investment Abroad: Impact and Explanations," Working Papers 2011-06, Economic Research Department, Bank of Thailand.

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