Malaysia’s International Relations and Foreign Direct Investment (FDI): A Structural Change Analysis

Har Wai Mun,Har Ee Ling,Lam Zheng Ling,Chan Mew Leng,Lum Carmen,Liew Khai Yi

doi:10.5539/ass.v6n7p156

Abstract

This study aims to identify the effect of international relations and the presence of structural change using Analysis of Covariance (ANCOVA) and Chow test respectively. It also aims to examine the long run relationships among Malaysia’s GDP and inward FDI, as well as among Malaysia’s total FDI and inward FDI taking into consideration of international relations using Engle-Granger test. Furthermore, Error Correction Mechanism (ECM) is used to examine whether the variables are converge in the lng run. This study supports that international relation affects inwards FDI from all selected countries (Japan, United States, Singapore and Germany). In addition, inwards FDI from respective countries have long run relationship with Malaysia’s GDP and Malaysia’s total FDI. It also found that the respective variables are converging in the long run. With this finding in mind, international relations-focused policies can be created in order to boost up Malaysia’s FDI inwards and growth.

Highlights

Ancient Eastern war strategists believed in existence of “hidden resources” that can be of great use in war fare
With all countries’ Error Correction Mechanism (ECM) generated have negative signs, it is concluded that these variables have converge in the long run
Malaysia’s total GDP and inward foreign direct investment (FDI) from the particular country (Japan, United States, Singapore and Germany) have short run relationship in which ECM will try to reinstate the equilibrium in the case these variables veer from their long run path

Summary

Introduction

Ancient Eastern war strategists believed in existence of “hidden resources” that can be of great use in war fare. Sun Tzu has a full chapter each on the use of two “hidden resources”, which are “terrain” and “fire” in his “Art of War”. Kongming ( known as Zhuge Liang, a renowned Chinese ancient war strategist who was the Chancellor of Shu Kingdom during the era of “three kingdom”) recognized the existence of two kinds of forces. The other kind is invisible soldiers, which he referred to all sorts of nature such as the sun, the moon, the stars, the wind, the clouds, water, fire, thunder and lightning, mountains and rivers. International relations is believed to be one of them, which could have great impact to economic but often overlooked. International relations have usually been assumed (ignored) as an endogenous variable in various economic modeling, in which its effect would not explicitly being captured by the model

Objectives

Results

Conclusion