Abstract
This study intends to investigate the validity of the foreign direct investment, FDI-led-growth hypothesis in Malaysia in this era. Autoregressive Distributed Lag (ARDL) bounds test approach is adopted to examine the impact of FDI inflow towards growth of Malaysia based on annually data from 1980 to 2016. Empirical results indicate that FDI inflow has significant positive impact on economic growth. This implies that FDI inflow remain important tool for stimulating economic growth of Malaysia. In addition, there is a negative impact of FDI inflow on economic growth during the 1997 Asian Financial crisis and positive impact during the 2008 Global Financial crisis. In terms of policy recommendation, the policy makers should continue to develop strategies to further attract FDI that will contribute to increasing the productivity in the country.
Highlights
Foreign direct investment (FDI) has been the engine of growth in Association of Southeast Asian Nations (ASEAN) in the 1990s
The findings indicated that FDI has positive impact on economic growth and tends to be stronger in the countries with higher level of education, trade openness, stock market development and lower rate of population growth
Empirical findings show that FDI inflow has positive relationship with economic growth of Malaysia
Summary
Foreign direct investment (FDI) has been the engine of growth in Association of Southeast Asian Nations (ASEAN) in the 1990s. The contribution of the FDI to economic growth has comes to the point of concern, the effects of crisis such as financial crisis This is due to the severe negative impact on the FDI inflow during the crisis periods such as 1997 Asian Financial crisis and 2008 Global Financial crisis. The intense rivalry among the ASEAN tigers (Indonesia, Malaysia, Thailand and Philippines), emerging economies such Vietnam and the rise of China have become a challenge among the nations in attracting FDI inflow This phenomenon indirectly indicates FDI plays significant role in stimulating economic growth of a country, uncertainties such as financial crisis and challenges among the nations to become FDI preference destination has lay a doubt on the role of FDI towards economic growth in this era.
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