Abstract
This study uses the ordinary least squares technique to examine the effect of foreign investment and government expenditure on the growth in GDP per capita in Malaysia over the period 1978-2005. The regression results showed that the growth of export and ratio of government expenditure to GDP are the driving forces in enhancing the economic growth in Malaysia. Foreign investment and previous year real income per capita growth depict positive impact, whereas population growth exerts a negative impact on economic growth.
Highlights
IntroductionForeign direct investment (FDI) is often seen as an important catalyst for economic growth
In the economic literature, foreign direct investment (FDI) is often seen as an important catalyst for economic growth
The study examined the impact of foreign investment and government development expenditure on Malaysian economic growth during 1978-2005
Summary
Foreign direct investment (FDI) is often seen as an important catalyst for economic growth. Given the lack of knowledge and skills to develop own indigenous technology, developing countries may depend on imported technology obtained from developed countries. FDI is one of the important vehicles of technology transfer from developed countries to developing countries. FDI is expected to induce technological progress and promote long term growth in the host country. FDI enhances economic growth of host countries through capital accumulation and human capital augmentation. FDI adds to the existing domestic capital stock and contributes to economic growth similar to the contribution of domestic capital investment. Existing stock of human capital in the host country is augmented through knowledge transfer, labour training and skill acquisition and diffusion from foreign multinational firms to domestic firms
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