Abstract
Foreign direct investment (FDI) has been an important source of economic growth for Malaysia, bringing in capital investment, technology and management knowledge needed for economic growth. Thus, this paper aims to study the relationship between FDI and economic growth in Malaysia for the period 1970-2005 using time series data. Ordinary least square (OLS) regressions and the empirical analysis are conducted by using annual data on FDI and economy growth in Malaysia over the 1970-2005 periods. The paper used annual data from IMF International Financial Statistics tables, published by International Monetary Fund to find out the relationship between FDI and economic growth in Malaysia case. Results show that LGDP, LGNI and the LFDI series in Malaysia are I(1) series. There is sufficient evidence to show that there are significant relationship between economic growth and foreign direct investment inflows (FDI) in Malaysia. FDI has direct positive impact on RGDP, which FDI rate increase by 1% will lead to the growth rate increase by 0.046072%. Furthermore, FDI also has direct positive impact on RGNI because when FDI rate increase by 1 %, this will lead the growth increase by 0.044877%.
Highlights
This paper defines foreign direct investment (FDI) as international capital flows in which a firm in one country creates or expands a subsidiary in another
FDI equals to FDI inflows as a share of gross domestic product (GDP) are calculated in the logarithms form respectively for Malaysia
We conduct the simple Ordinary Least Square (OLS) test to seek the relationship between FDI and economic growth in Malaysia
Summary
This paper defines foreign direct investment (FDI) as international capital flows in which a firm in one country creates or expands a subsidiary in another. It involves a transfer of resource and the acquisition of control. When the foreign factories are set up in their countries, they will expose to higher technology production and efficiency in management. In addition to creating more jobs and generating export,the foreign multinationals have contributed to the development of the technical capabilities of the locals. This is through the process of technology transfer
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