Determinants of foreign direct investment in Malaysia / Sherlyn Badaruddin

Foreign Direct Investment (FDI) plays a vital role in speeding up spending a country's progress and economic growth. In particular, developing countries depend heavily on FDI to sustain their economies as they face capital shortages in their growth cycle. To developing countries, FDI brings not only capital and technology, but also expertise and skills. Malaysian economy depends heavily on FDI as the inflows started fluctuating from 1996 to 2010 and this high volatility of Malaysia FDI inflows drew the attention of the researchers’ to assess the factors affecting FDI inflows in Malaysia by using the annual data from the year of 1970 to 2018. Multiple linear regression models are applied to study the relationship between explanatory variables (economic growth, exchange rate and inflation rate) and explained variable (Foreign Direct Investment (FDI) inflows). Empirical results show that the explanatory variables of economic growth and exchange rate show a significant and positive relationship with the FDI inflows in Malaysia. Meanwhile, for inflation rate, it failed to establish a significant relationship with FDI inflows in Malaysia.