FDI and Economic Growth Linkages in Malaysia

Abstract

The primary concern of the present study is to re-examine the relationship between Foreign Direct Investment (FDI) and Gross Domestic Product (GDP) in Malaysia when savings-investment gap recorded a surplus in the late 90’s. It focuses on the transition period from shortage to surplus in savings, which has not been given attention by many previous studies, especially in Malaysia. Using time series analysis, the quarterly data consisting of FDI, GDP and trade openness from year 2000 until 2010 were carefully analyzed and Autoregressive Distributed Lag (ARDL) model for integration and Granger Causality tests were employed. The results revealed that all the variables used in the study are co-integrated in the long run. Furthermore, the results also show that there exists the unidirectional Granger Causality from FDI to GDP. Thus, this study concludes that Malaysia still relies on FDI to boost its economic growth even though there is a surplus in savings-investment gap.

DOI: 10.5901/mjss.2015.v6n4s2p652