Proposal for Effects of Foreign Direct Investment towards Economic Growth, Exchange Rate, and Management Skills in Malaysia
Research Method (MKT651)
Noor Azyan Syawanie Bt Abdul Ghani
Nur Athirah Binti Mohamadzin
Nur Aishatul Adila Binti Adnan
Effects of Foreign Direct Investment towards Economic Growth in Malaysia
Malaysia is a nation that has been working itself up from the predominantly mining and agricultural based economy towards a more multi-sector economy. To achieve a faster economic growth, Malaysia has accepted an unparalleled opportunities for developing this country through globalization (Athukorala, 2003).
An offer of combination of locational ...view middle of the document...
With the technology spillovers from FDI by the MNE operations, domestic firms adopt MNE superior technology and improve host country’s productivity (Johnson, 2005).
Due to the prospects of FDI, to draw FDI, a host country should encourage FDI flows by offering tax incentives, infrastructure subsidies, import duty exemptions and other measures. When there is a negative impact on economic growth, a host country should take precautionary measures to discourage and restrict such capital inflows (Lyroudi, Papanastasiou, & Vamvakidis, 2004). The encouragement of these investments in developing countries has been directed towards activities that are relatively knowledge-intensive.(Lamine, 2010).
Today, Malaysia has made one of the largest regional and global recipients of FDI with the combinations of market-oriented economy and an educated multilingual workforce with a well-developed infrastructure (Lean, 2008). With the help of these advantages that will encourage the foreign investors to invests, Malaysia will achieve its economic growth in time.
1.0 Background of the study
1.1 Foreign Direct Investment in Malaysia
Foreign Direct Investment (FDI) is an international capital flows in which a firm in one country creates or expands a subsidiary in another (Har, Teo, & Yee, 2008). Since 1957, after gaining independence, Malaysia has taken advantage of tangible and intangible assets to bring in FDI. Furthermore, the Government of Malaysia’s (GOM) main policy is to bind FDI as a part of economic development strategy to acquire foreign technology, capital and skills.FDI is the key driver for the undergoing strong growth performance experienced by the Malaysian economy. FDI can be a source of invaluable technology and strengthen linkages with local firms, which can help jumpstart an economy (Alfaro, 2003).
There are many types of investment that contributed in the growth of economic in Malaysia. (Alfaro, 2003) states:
“A few said investments are in primary sectors, manufacturing sector, and services sector.”
These investments are one of the key that contributes to the economic growth of Malaysia. According to Star Online, Malaysia has recorded its highest ever FDI of RM 38.7 billion in 2013, 24% increase over 2012 and 3.9% higher than the last record of RM 37.3 billion achieve in 2011.
1.2 Gross Domestic Product (GDP)
Gross Domestic Product (GDP) is defined by Organization for Economic Cooperation and Development (OECD) as an aggregate measure of production equals to the sum of the gross values added of all resident institutional units engaged in production.The gap between the relationship of FDI and economic growth are Gross Domestic Product (GDP), exchange rate, and management skills. In other words, GDP can also be defined as the value of all final goods and services produced within a nation in a given year.
The formula for GDP is:
Y = GDP
C = Consumer spending
I = Investment made by industry