HOW IMPORTANT IS MALAYSIA FOREIGN DIRECT INVESTMENT? EVIDENCE FROM 1992 THROUGH 2019

Abstract

This study aims at examining Malaysia’s investment policy in attracting foreign direct investment (FDI) for the past 28 yearswith a specific focus on investigating strength of relationship betweennet FDI and three key economic indicators – real Gross Domestic Product (GDP), exchange rates and long-term interest rates.  Within the framework of Keynesian Income Theory and Theory of Optimal Capital Accumulation by Jorgenson, this paper deploysboth Ordinary Least Squares (OLS) regression and Engle-Granger Cointegration testas estimation tools to model the yearly secondary data from 1992 through 2019. The empirical results from the study show that Malaysia net FDIdo have some influence onreal GDP, exchange rates and long-term interest rates.  From Pearson correlation coefficient, we observe a strong positive correlation between net FDI and real GDP. It is now evident that net positive FDI plays an important role not only in sustaining growth in GDP but also in strengthening the value of RM against USD.  Malaysia needs a good investment policy which could attract quality FDI into the country allowing its economy to reach full employment and to optimize scarce resources in the best possible manner.