Impact of Foreign Direct Investment on the Export Performance of India, China and Malaysia

Abstract

Foreign direct investment (FDI) has grown in importance for developing countries in recent decades. Global FDI almost quadrupled between 1995 and 2000. The share of developing countries in global flows reached a peak of 39.6 per cent in 1996 before sharply declining due to the Asian crisis in 1997. Amongst the developing countries, China had the largest share of FDI inflows amounting to 17 percent in 2000 while Malaysia and India had relatively lower shares at 2.3 percent and 1 percent respectively. Malaysia, which has a much lower GDP than that of India, receives a higher inflow of FDI. As such, it is worth comparing the influence of FDI inflows on the export performance of these three countries. The time period of the study is from 1991 to 1999. The regression model used here shows exports as a function of FDI, GDP, imports and other qualitative characteristics and has been estimated as a log-log model after testing for the correct functional form. The results indicate that FDI does not influence the exports of India, China and Malaysia. It is GDP and imports that influence their exports.