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Foreign Direct Investment And Economic Growth In Malaysia: The Role Of Domestic Financial Sector



    (Department of Economics, Faculty of Accountancy and Management, Universiti Tunku Abdul Rahman, Lot PT 21144, Jalan Sungai Long, Bandar Sungai Long, Cheras, 43000 Kajang, Selangor D.E., Malaysia)


    (Department of Economics, Faculty of Economics and Management, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor D.E., Malaysia)


    (Department of Econometrics and Business Statistics, School of Business, Monash University Malaysia, No.2 Jalan Kolej, Bandar Sunway, 46150 Petaling Jaya, Selangor D.E., Malaysia)

This study aims to incorporate the role of domestic financial system in transferring the technological diffusion embodied in FDI inflows on the Malaysian economy from 1970–2001. Applying bound test, or unrestricted error correction model (UECM) proposed by Pesaran et al. (2001), the presence of FDI inflows creates a positive technological diffusion in both short- and long-run if the evolution of domestic financial system has achieved a certain minimum level. This implies that the improvement of technology level in Malaysia in the long run is due to the spillover efficiency effects from FDI. Hence, the study suggests that FDI tends to be more likely to enhance economic growth more efficiently when a recipient country has a well-developed and well-functioning financial sector.

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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal The Singapore Economic Review.

Volume (Year): 50 (2005)
Issue (Month): 02 ()
Pages: 245-268

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Handle: RePEc:wsi:serxxx:v:50:y:2005:i:02:p:245-268
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