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Institutions and foreign direct investment (FDI) in Malaysia: empirical evidence using ARDL model

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  • Abdul Karim, Zulkefly
  • Zaidi, Mohd Azlan Shah
  • Ismail, Mohd Adib
  • Abdul Karim, Bakri

Abstract

Since 1990’s, institution factors have been regarded as playing important roles in stimulating foreign direct investments (FDI). However, empirical studies on their importance in affecting FDI are still lacking especially for small open economies. This paper attempts to investigate the role of institutions upon the inflow of foreign direct investment (FDI) in a small open economy of Malaysia. Using bounds testing approach (ARDL model), the empirical findings reveal that there exists a long run relationship among FDI and the institution variables. Specifically, several institution variables namely government stability, bureaucracy, and corruption are found to play prominent roles in influencing the inflow of FDI. Thus, in attracting foreign investors, implementing FDI-friendly policies by providing and maintaining the quality of domestic institutions would be beneficial to Malaysian economic growth.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 31899.

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Date of creation: 29 Jun 2011
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Handle: RePEc:pra:mprapa:31899

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Keywords: Institutions; Foreign Direct Investment (FDI); ARDL;

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  1. James Ang, 2009. "Financial development and the FDI-growth nexus: the Malaysian experience," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1595-1601.
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