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

[Asian Social Science; Vol. 6, No. 7; July 2010]

Har W.M, Lam Z.L, Chan M. L, Liew K.Y, Har E.L & Lum C.

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 long 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.