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A re-examination of the role of foreign direct investment and exports in Malaysia's economic growth

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  • Tang, Chor Foon

Abstract

The main objective of this study was to re-examine the role of foreign direct investment (FDI) and exports in Malaysia’s economic growth over the period of 1970 to 2006. The Johansen and Juselius (1990) cointegration test was used to investigate the presence of a long-run equilibrium relationship between economic growth and its determinants. Besides, the vector error-correction model (VECM) and the Granger (1969) causality test were used to examine the short-and long-run causality direction between the relevant variables. The empirical results revealed that economic growth and its determinants were cointegrated. The Dynamic OLS results suggested that FDI and exports were positively related to economic growth. In addition, the Granger causality results strongly supported bilateral causality between economic growth and its determinants. This indicated that FDI and exports contribute to Malaysia’s economic growth. In fact, high economic growth will also cause FDI and export-orientated industries to grow rapidly.

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  • Tang, Chor Foon, 2008. "A re-examination of the role of foreign direct investment and exports in Malaysia's economic growth," MPRA Paper 38536, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:38536
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    More about this item

    Keywords

    Causality; Cointegration; Export-led growth; FDI-led growth;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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