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The Determinants of Foreign Direct Investment in Malaysia: A Revisit

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  • Chee-Keong Choong
  • Siew-Yong Lam

Abstract

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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    Citations

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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. Shah, Mumtaz Hussain & Khan, Faisal, 2019. "Telecommunication Infrastructure Development and FDI into Asian Developing Nations," MPRA Paper 107255, University Library of Munich, Germany.
    4. Tanattrin Bunnag, 2023. "Analyzing Short-run and Long-run Causality Relationship among CO2 Emission, Energy Consumption, GDP, Square of GDP, and Foreign Direct Investment in Environmental Kuznets Curve for Thailand," International Journal of Energy Economics and Policy, Econjournals, vol. 13(2), pages 341-348, March.
    5. Assad Ullah & Yang Qingxiang & Zahid Ali & Nadia Hidayat, 2016. "Exploring the Relationship between Country Risk and Foreign Private Investment Inflows in Pakistan," Review of Market Integration, India Development Foundation, vol. 8(3), pages 113-134, December.
    6. Assad Ullah & Yang Qingxiang & Mohammad Abdul Kamal & Zahid Ali4, 2015. "Domestic Investment Climate And Foreign Direct Investment In South Asia: A Panel Data Evidence," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 11(2), pages 11-12.
    7. Fateh Habibi & Mohammad Sharif Karimi, 2017. "Foreign Direct Investment and Economic Growth: Evidence from Iran and GCC," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 21(3), pages 601-620, Summer.
    8. Asaduzzaman, Md, 2019. "FDI as an Opportunity for Economic growth of Bangladesh: A VECM Analysis," MPRA Paper 110328, University Library of Munich, Germany, revised 05 Dec 2019.
    9. Tanattrin Bunnag, 2023. "Environmental Kuznets Curve Model for the United States: A Consideration of Foreign Direct Investment Variable," International Journal of Energy Economics and Policy, Econjournals, vol. 13(4), pages 130-138, July.
    10. Assad Ullah & Yang Qingxiang & Mohammad Abdul Kamal & Zahid Ali4, 2015. "Domestic Investment Climate And Foreign Direct Investment In South Asia: A Panel Data Evidence," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 11(2), pages 149-164.
    11. 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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