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The Determinants of Foreign Direct Investment in Malaysia: A Revisit


  • Chee-Keong Choong
  • Siew-Yong Lam


The paper re-examines the determinants of foreign direct investment (FDI) in Malaysia, for the period 1970-2006. The cointegration results show that market size of both Malaysia and China have major, and a statistically significant impact, on FDI inflow to Malaysia. The results seem to support the argument that foreign investors tend to be more attracted to the country with a higher growth rate of gross domestic product (GDP) because it indicates a laglecrv potential demand for their products. In addition, the results also demonstrate that openness level of the country has a positive and statistically significant effect on FDI inflow, which supports the hypothesis that FDI can be attracted to a country with more liberalized economic reforms. Finally, the results show that literacy rate (human capital development) has significant positive effect on FDI inflow. The finding suggests the need for labor force expansion and education policy to raise the stock of human capital in the country. Using Granger causality test, we also find that there exist unidirectional causality from real GDP of both Malaysia and China, degree of openness and literacy rate to FDI inflow.

Suggested Citation

  • Chee-Keong Choong & Siew-Yong Lam, 2010. "The Determinants of Foreign Direct Investment in Malaysia: A Revisit," Global Economic Review, Taylor & Francis Journals, vol. 39(2), pages 175-195.
  • Handle: RePEc:taf:glecrv:v:39:y:2010:i:2:p:175-195
    DOI: 10.1080/1226508X.2010.483837

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    Cited by:

    1. Tang, Chor Foon & Yip, Chee Yin & Ozturk, Ilhan, 2014. "The determinants of foreign direct investment in Malaysia: A case for electrical and electronic industry," Economic Modelling, Elsevier, vol. 43(C), pages 287-292.
    2. Kinuthia, Bethuel Kinyanjui & Murshed, Syed Mansoob, 2015. "FDI determinants: Kenya and Malaysia compared," Journal of Policy Modeling, Elsevier, vol. 37(2), pages 388-400.
    3. Rosa Forte & Nancy Santos, 2015. "A cluster analysis of FDI in Latin America," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 52(1), pages 25-56, May.


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