The Effect of Infrastructure Towards FDI Inflow in Malaysia

Liew, Jing Wen (2018) The Effect of Infrastructure Towards FDI Inflow in Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University College.

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Abstract

Foreign direct investment (FDI) is an essential tool for the development of a country especially countries that are under developing as these countries lack of capital, lack of access to modern technology and other factors. In 1990s, FDI increased rapidly into emerging market countries (EMCs) and the determinants of investment location that attract investors to invest in these countries are different but one of the factors is due to the availability of infrastructure in the country. EMCs that are well prepare to solve the infrastructure problems will attract greater amount of FDI such as in China and India. In Tenth and Eleventh Malaysia Plan, government had made large amount of investments in transport, digital and energy infrastructure and transport and logistic sector will continue to remain as a key driver of growth. The purpose of this study is to identify the short run and long run relationship between FDI inflow in Malaysia with infrastructure along with market size, exchange rate, inflation rate and financial market development Autoregressive distributed lag (ARDL) test is used in this study to test the cointegration and an error correction model based on ARDL approach using time series data for the period 1971 to 2014 in case of Malaysia. This paper reveals a negative impact of infrastructure in attracting FDI in both short run and long run in Malaysia. Hence, this may be one of the issues that cause the infrastructure and FDI have negative relationship in Malaysia. The finding also shows that market size, exchange rate and inflation rate are essential factors that attract FDI inflow into Malaysia in the long run while infrastructure, market size and exchange rate are key determinants in the short run.