Examining the Equilibrium Relationships between Foreign Direct Investment Inflows and Employment in Manufacturing and Services Sectors: Evidence from Malaysia

Hussain Ali Bekhet

doi:10.22610/jsds.v4i1.733

Abstract

The current paper examines the long-run and short-run equilibrium relationships between FDI inflows and employment in Malaysian manufacturing and services sectors using ARDL approach for the 19722011 period. It employs ADF and PP tests to detect the stationary levels of above variables. Also, it utilizes the bounds F-statistics test to identify the co-integration among variables. Results of ARDL approach indicate the presence of significant long-run and short-run equilibrium relationships between FDI inflows and employment in manufacturing and services sectors. The paperâ€™s findings are of particular interest and importance to Malaysian policy makers towards increasing FDI inflows and employment in manufacturing and services sectors.

Highlights

Foreign direct investment (FDI) is an important source of capital in host countries that complements domestic private investment, creates employment, enhances technology transfer and boosts overall economic growth (Chowdhury and Mavrotas, 2005)
The results revealed that FDI inflows increased economic growth and boosted employment in various economic sectors
The current paper extends the existing literature by analyzing the long-run and short-run equilibrium relationships between FDI inflows and employment in manufacturing and services sectors

Summary

Introduction

Foreign direct investment (FDI) is an important source of capital in host countries that complements domestic private investment, creates employment, enhances technology transfer and boosts overall economic growth (Chowdhury and Mavrotas, 2005). The significant of this paper that there is no authoritative work analyzed the long-run and short-run equilibrium relationships between FDI inflows and employment in manufacturing and services sectors using autoregressive distributed lag (ARDL) approach and Malaysian annual time-series data for the 1972-2011 period. Overview of FDI and Malaysian Economy: Since the independence in 1957, Malaysia has taken advantages of tangible assets such as natural recourses and abundant labor It takes intangible assets such as trade status, macroeconomic stability, education system and infrastructure (Trade Chakra, 2012). Due to HICOM projects establishment and the high levels of FDI flows into Malaysia, unemployment rates decreased dramatically and achieved an inverse growth rate of -3% for the 1985-2011 period (See, Figure 4)

Literature Review

Methodology

Results and Analyses