Impact of Foreign Direct Investment on the Unemployment Rate in Malaysia

Abstract

Malaysia as a developing country needs support from other countries for economic growth. This is done by receiving massive foreign direct investment (FDI) which contributes to a higher employment rate. Higher employment leads to a better living among Malaysians while increasing its gross domestic product (GDP). During 2009, Malaysia faced a downward trend on the FDI. In many studies, decreasing FDI affects employment rate significantly. This study focuses on the impact of FDI on employment rate in Malaysia. Other factors such as the number of foreign workers, gross domestic product (GDP) and exchange rate (EXCR) are also included in the study. Data used in the study is annual data spanning from 1980 to 2012. Autoregressive distributed lag (ARDL) model is used to determine the long run relationship between the variables. The study finds that FDI, number of foreign workers, and GDP significantly influence the unemployment rate in Malaysia.