The Effects of Foreign Direct Investment on Economic Growth in Malaysia

FDI appears when a commonly expanding or growing company is investing to a foreign country. FDI consists of the acquisition or creation of assets (e.g. firm equity, land, houses, oil-drilling rigs and etc.) undertaken by foreigners. Initial investment or ownership of the foreign equity has to be more than 10% but does not need to be a 100%. Anything less than 10% of the ownership will be called portfolio investment. Company which invests in foreign markets become a multinational enterprise (MNE).

Figure 1.7 The structure of the dissertation Figure2.2 Modes of entering foreign markets Table 2.32 Factors affecting the FDI decision Figure 2.33 Types of FDI 12 15 19 22

In addition it is worth considering that emerging economies having been attracting increasingly more Foreign Direct Investment (FDI) having accounted for 52% of global FDI inflows according to recent data. Looking closer at the FDI spread based on regional allocation it is worth noting that Nigeria received the greatest proportion of FDI in Africa, Indonesia in South-Eastern Asia, Mexico in Central America and Turkey in West Asia. This demonstrates the investment potential within the MINT

Foreign direct investment (FDI) is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company. Foreign direct investments are distinguished from portfolio investments in which an investor merely purchases equities of foreign-based companies. The key feature of foreign direct investment is that it is an investment made that establishes either effective control of, or at least substantial influence over, the decision making of a foreign business.

To attract FDI, corporate tax incentives has been used worldwide, as FDI significantly boost up the productivity and the growth of economic. The reason why China has become the most attractive destination of FDI is that its FDI policies, huge labour supply and low cost of it, stable economic and political environment. (Deng et al., 2007). FDI inflows into China

Another incentive for prospects of FDI in developing countries has moved from location advantage to competitive advantage. Before, investing firms based their FDI motives on natural resource allocations, cheap labor and production. Now, it is becoming a bigger trend for these firms to count more on the `availability of knowledge creating activities' that allow them to exploit their advantage over competition through the new technology they bring to the developing countries. A further incentive deals with `asset control' that leads to cost reduction and larger markets in which

In Foreign direct investment, exports, education, and growth in Malaysia (Yusoff, 2015) the author explains that Malaysia is an export-based economy that has enacted several liberalization measures to attract foreign investment, such as allowing foreigners to own property when certain criterias are met among other advantages. Malaysia considers exports and foreign direct investment as an “important source of human capital augmentation, technological change and spillovers” (p. 29).

Yousaf (2008) Analyses of more than 3 decades reveal that FDI has positive relation with imports in short & long-run where as relationship with exports is negative in short & positive in the long-run. FDI is an economic influencer of economy of a country specially developing countries experience accelerated GDP when successful in attracting FDI as in case of Pakistan.

On the other hand, John Dunning claimed that there are four types of FDI in terms of their motivations: resource seeking FDI, efficiency seeking FDI, market seeking FDI and strategic asset or capability seeking FDI. According to resource seeking FDI, companies invest in foreign countries with the purpose of acquiring resources of higher standard and at a smaller cost than in their own country. Examples of resources are raw materials, labor force, infrastructure (roads, telecommunication) and technological level (Dunning, 2008). As claimed by market seeking FDI, firms invest in a country with the purpose of supplying goods and services to the host country’s market. It highly depends on market size and products distribution channels. At the same time, efficiency seeking FDI has the aim to exploit greater availability and lower costs of all relevant components from foreign countries. Last, strategic asset seeking FDI is driven by the strategic goals in the long run of foreign firms such as encouraging and promoting their worldwide competitiveness or weakening their rivals (Wadhwa, 2011). If we analyse the FDI amount in Romania during 1990-2009, over 50% of it was concentrated in the secondary sector (manufacturing). So investors

For growing economies, Foreign Direct Investment (FDI) has momentous advantages over equity and debt capital flows. Most of the foreign firms that start their conduct of business in other countries, they not only come with capital but transfer modern technology, promote human capital by training the host country’s employees according to the change of technology to those countries, and this is the key for the development of the host country.

(01)Size of the Market- Econometric studies comparing a cross section of countries indicate a well- established correlation between FDI and the size of the market. Some studies found GDP growth rate to be a significant explanatory variables, while GDP was not, probably indicating that where the current size of

The inflow of Foreign Direct Investment to Indonesia is very dynamic featured with upward and downward trend interchangeably. Since 1981 FDI ratio to Indonesian GDP is relatively low range from 0 – 3% of Indonesian GDP. But the number of FDI could be regarded as the signal of Indonesian economic recovery and investor confidence of the country. Historically, Indonesian FDI rose significantly in second phase of Soeharto era from 1981 to 1996 but then drastically down as the effect of Asia Financial Crisis and internal political instability in 1996 to 2000. Indonesia’s start to regain investor confidence after the successful democratization process in 2000 and peaked the performance in 2014 at the presidency of Yudhoyono. But in

Malaysia’s GDP Annual Growth Rate since 2000 till present. Notice the sharp contraction after the 2008 Financial Crises.

Supported by a market-oriented economy and pro-business Government policies, Malaysia offers investors a dynamic and vibrant business environment with the ideal prerequisites for growth and profits. Malaysia 's key strengths include well-developed infrastructure and productive workforce. A politically stable country with a well-developed legal system, Malaysia also provides attractive incentives for investors.

Additionally, Malaysia has traditionally relied on US foreign investments, particularly during the former state’s rapid economic mobilisation from the 1970s to the end of the 1990s. Malaysia, a former colonial state which inherited a dwindling, natural resource-dependent economy from the British, achieved unprecedented rate of growth under Mahathir’s developmental strategy. Malaysia’s economic development achieved its zenith in the 1990s, hailed by the World Bank as an `economic miracle’ in the developing world. During this course of development, the US played a pivotal role via its foreign investments. For instance, US investments in Malaysia tripled between 1990 and 2000, from US$1.5 billion to US$6 billion, of which 57% was in manufacturing, 21% in petroleum and natural resources, and 22% in services and related industries.