The Influence of Malaysian FTAs on Trade and Investment, with Special Reference to Malaysia-India FTA

Malaysian economy has remained largely open to trade and investment in the last two decades. Over the years, Malaysia has established several trade agreements with different countries, including India. The present study focuses on the trade relationship between Malaysia and its FTA partners with special emphasis on Malaysia-India Comprehensive Economic Cooperation Agreement (MICECA). It first assesses Malaysia’s FTA policies in a larger context with the rest of the world, before analyzing the tariff commitments and the initiatives taken by Malaysia and India with the signing of MICECA. The study also looks at the potential sectors where Malaysia can possibly engage in a strong trade with India. It attempts to analyze whether the increased trade of Malaysia with its FTA partners has stimulated FDI inflow into Malaysia from its FTA partners by using Granger causality test for the period 2004-2011. The results of separate analysis show that total export and total import does not Granger-cause FDI from the FTA partners. Further in context of manufacturing, a causal relationship between FDI into manufacturing and manufacturing export could not be established between the FTA partners. However, at one lag, the results suggest the direction of causality between total trade with its FTA partners and total FDI inflow from its FTA partners.