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Impact of political instability on foreign direct investment and Economic Growth: Evidence from Malaysia

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  • Nazeer, Abdul Malik
  • Masih, Mansur

Abstract

Based on many studies, economic theories and real life experiences, we can understand that political instability has been a harmful factor that would hinder the flow of FDI and the growth of an economy. In our study, we would like to focus on Malaysia, which had its fair share of political instability issues due to the differences and existence of various races. But based on recent studies, it is considered a politically stable economy. Despite everything, Malaysia has been able to achieve consistent economic growth, therefore we believe Malaysia is an interesting country to explore further. This paper aims to analyze the impact of political instability on foreign direct investment and on economic growth of Malaysia. This study employs autoregressive distributed lag (ARDL) approach to cointegration proposed by Pesaran et al. (2001). It is based on a time series data over the period of 30 years ranging from 1984 to 2013. There has been no studies identified yet to our knowledge which has investigated the causal relationships between political instability, FDI and economic growth for Malaysia. Our study aims to fill this gap in literature and would be of great use for the policy makers and key decision makers of the economy. The empirical results reveal that there are both long and short run relationship between political instability, FDI and economic growth in Malaysia, with economic growth being the strongest driver for political instability and FDI. These findings have clear policy implications in that the government of Malaysia can make use of it by targeting the growth in the economy to impact FDI and political instability.

Suggested Citation

  • Nazeer, Abdul Malik & Masih, Mansur, 2017. "Impact of political instability on foreign direct investment and Economic Growth: Evidence from Malaysia," MPRA Paper 79418, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:79418
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    References listed on IDEAS

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    4. Emilia Anuta Corovei & Adela Socol, 2019. "The Impact of Political Stability on Economic Growth in European Union," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 8-14, August.
    5. Sicong Li, 2020. "Determinants of Chinese Direct Investment in Central-East Europe under the Belt and Road Initiative Framework: A Panel Data Analysis," International Journal of Innovation and Economic Development, Inovatus Services Ltd., vol. 6(4), pages 62-81, October.
    6. George Owusu-Antwi & Dwobeng Owusu Nyamekye & Patrick Ofei & Frederick A. Aikens, 2019. "Foreign Direct Investment: Is Natural Resources the Rejoin? Evidence from Ghana, Nigeria, and Togo: Fixed Effect Approach," International Journal of Asian Social Science, Asian Economic and Social Society, vol. 9(12), pages 588-606, December.
    7. Yapatake Kossele Thales Pacific & Ngaba Mbai-Akem Gabriella Magalie, 2023. "One Bad Turn Deserves Another: How Energy Production, Financial Instability, and Political Governance Crisis Sustain the Decline of FDI Inflows in the Central African Republic," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(2), pages 831-853, June.
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    More about this item

    Keywords

    political instability; foreign direct investment; economic growth; Malaysia; ARDL;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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