Hassanudin Mohd Thas Thaker, Faculty of Business, Economics and Accounting HELP University, Malaysia
Tan Siew Ee, Faculty of Business, Economics and Accounting, HELP University, Malaysia
Sridevi Narayanan, Faculty of Business, Economics and Accounting, HELP University, Malaysia

One of the key indicators for evaluating the economic growth of a country is Foreign Direct Investment (FDI). FDI activity will generate multiplier effects such as the influx of capital investment, technological advancement and increase in productivity levels especially in knowledge management and human capital development. As shown in other studies, Malaysia has always been considered to have attained its economic growth through FDI. The Malaysian economy has undergone massive structural changes; evolving from an agriculture base into a dominant producer and exporter of manufactured goods and services. Therefore, our objective here would be to test whether FDI has any significant relationships with important variables like Real GDP, Nominal Exchange Rate, Current Account Balance and Industrial Production Index. Empirical data in our paper covers a 22-year time-span and quarterly time-series data (1990: Q1–2012: Q4) are used to uncover the short–run and long–run relationship between FDI and these variables. Dynamic econometric measures including the Augmented Dickey Fuller (ADF) and Phillip–Perron (PP) unit root tests, Co-integration test and the Vector Error Correction Model (VECM) as well as the Granger Causality Test have been applied. Based on these generic models, our overall conclusion is that FDI is a very significant and dominant factor in Malaysia’s development and economic diversification. The paper also highlights some major problems facing foreign investors which require immediate remedial action.

Keywords: Foreign Direct Investment, Determinants, Policy Issues, Malaysia.

Suggested citation: Thaker, H.M.T., Ee, T.S. & Narayanan, S. (2017). Foreign Direct Investments (FDI) in Malaysia - determinants and policy issues. Skyline Business Journal, Volume 13, Issue1,pp 01-13.

Thaker, H.M.T., Ee, T.S. & Narayanan, S. (2017). Foreign Direct Investments (FDI) in Malaysia - determinants and policy issues. Skyline Business Journal, Volume 13, Issue1,pp 01-13.