Abstract
Foreign Direct Investment (FDI) is said to boost the economic growth of the host country and FDI also is one of the factors that contribute to regional disparities because FDI typically tend to focus on the areas that offer economic advantages compared to those areas of backward regions. This study aimed to investigate the effect of FDI on economic development and regional disparities in a globalizing economy of Malaysia. It explores the proposition that regional disparities are linked to the FDI that come into the country. This study involved six areas of the Northern, Central, Eastern, Southern, Sabah and Sarawak Regions. The variables used involved data acquired from Bank Negara Malaysia Report, Ninth Malaysia Plan, Tenth Malaysia Plan, Labor Investigation Report, Department Of Statistics Malaysia, Malaysian Investment Development Authority (MIDA) and Economic Planning Unit (EPU) and the period covered was 28 years ranging from the year of 1980 to 2008. The analysis was conducted using classical production function which explained output as function to capital and labor and involved time series and cross section data which will be regressed with Least Square Dummy Variables (LSDV) Regression Model and Random Effects Model. It was found that FDI is positive and significantly related to GDP implying that FDI is enhancing economic growth and regions with higher level of FDI tend to have higher GDP. Since FDI focuses on the developed areas especially the central, northern and southern regions, thus this concentration will widen the regional disparities in Malaysia. These disparities has brought about the imbalances between the society with regards to poverty, manufacturing activities and many more.
Highlights
Foreign direct investment (FDI) has grown dramatically as a major form of international capital transfer over the past decades
This study aimed to investigate the effect of Foreign Direct Investment (FDI) on economic development and regional disparities in a globalizing economy of Malaysia
The variables used involved data acquired from Bank Negara Malaysia Report, Ninth Malaysia Plan, Tenth Malaysia Plan, Labor Investigation Report, Department Of Statistics Malaysia, Malaysian Investment Development Authority (MIDA) and Economic Planning Unit (EPU) and the period covered was 28 years ranging from the year of 1980 to 2008
Summary
Foreign direct investment (FDI) has grown dramatically as a major form of international capital transfer over the past decades. It has become a major form of net international burrowing for Japan and the United States of America (the world’s largest international lender and borrower respectively) (Frost, 1993). Some study found that this FDI is one of the factors which could contribute to disparities between one region to another. This is because FDI is usually more concentrate to an area which offers economic advantages that have low production cost especially in regions which are more developed. The growth effects of FDI may be constrained by the concentration of FDI in relatively advanced locations (Aggarwal, 2005)
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