Foreign Investment in Malaysia and Its Impact on Economic Growth
BDMF7053: GLOBAL ECONOMIC THEORIES AND ISSUES
SEMESTER 1 2012/2013
FOREIGN DIRECT INVESTMENT IN MALAYSIA AND ITS IMPACT ON
ECONOMIC GROWTH
BY:
RODZIAH AHMAD (S93935)
FOR:
PROF. DR. K KUPURAN VISWANATHAN
DATE SUBMISSION:
10 JANUARY 2013
Introduction
Foreign direct investment (FDI) means an international capital flows in which a firm in one country creates or expands a subsidiary in another (Krugman & Obstfeld, 2006). Directly, it means the subsidiary not only has the financial obligation towards its parent company, it extends to the same organizational structure and value.
Theoretically, companies involve in FDI due to cost saving on the location, usage of abundance resources, technology transfer, vertical integration (coordinating supply and demand to an agreed price) and currency exchange that will reduce cost and increase value to shareholders. FDI in a host country is expecting to boost the manufacturing and services industry and consequently boost up the economy.
FDI impact on economy and social
The area has been widely studied by economist and among others, in East Asia, FDI is used as channel of increasing capital stock and it has positive effect on the economic growth in
Vietnam (Thu Thi, Paitoon, & Bangorn, 2010) and more growth in Vietnam if the invest is done in education, training, financial market development (Anwar & Lan Phi, 2010). FDI increase wages of skilled and unskilled labour (Oladi, Gilbert, & Beladi, 2011) and it could increase the household spending in the host country.
However, the distance of investors from origin country to destination or host country plays an important role in promoting FDI in the latter. This is a sample of macroeconomic gravity impact whereby the investors easily commute from their home country and understanding of the custom and language could reduce the barrier in communication. Foreign investment could contribute in ethical and structural norm in an organization rather than
SEMESTER 1 2012/2013
FOREIGN DIRECT INVESTMENT IN MALAYSIA AND ITS IMPACT ON
ECONOMIC GROWTH
BY:
RODZIAH AHMAD (S93935)
FOR:
PROF. DR. K KUPURAN VISWANATHAN
DATE SUBMISSION:
10 JANUARY 2013
Introduction
Foreign direct investment (FDI) means an international capital flows in which a firm in one country creates or expands a subsidiary in another (Krugman & Obstfeld, 2006). Directly, it means the subsidiary not only has the financial obligation towards its parent company, it extends to the same organizational structure and value.
Theoretically, companies involve in FDI due to cost saving on the location, usage of abundance resources, technology transfer, vertical integration (coordinating supply and demand to an agreed price) and currency exchange that will reduce cost and increase value to shareholders. FDI in a host country is expecting to boost the manufacturing and services industry and consequently boost up the economy.
FDI impact on economy and social
The area has been widely studied by economist and among others, in East Asia, FDI is used as channel of increasing capital stock and it has positive effect on the economic growth in
Vietnam (Thu Thi, Paitoon, & Bangorn, 2010) and more growth in Vietnam if the invest is done in education, training, financial market development (Anwar & Lan Phi, 2010). FDI increase wages of skilled and unskilled labour (Oladi, Gilbert, & Beladi, 2011) and it could increase the household spending in the host country.
However, the distance of investors from origin country to destination or host country plays an important role in promoting FDI in the latter. This is a sample of macroeconomic gravity impact whereby the investors easily commute from their home country and understanding of the custom and language could reduce the barrier in communication. Foreign investment could contribute in ethical and structural norm in an organization rather than
Bibliography: Anwar, S., & Lan Phi, N. (2010). Foreign direct investment and economic growth in Vietnam. Bardy, R., Drew, S., & Kennedy, T. (2012). Foreign Investment and Ethics: How to Contribute to Social Responsibility by Doing Business in Less-Developed Countries Krugman, P. R., & Obstfeld, M. (2006). International Economics Theory & Policy (6 ed.). US: Pearson Education. Lafourcade, M., & Paluzie, E. (2011). European Integration, Foreign Direct Investment (FDI), and the Geography of French Trade Oladi, R., Gilbert, J., & Beladi, H. (2011). Foreign Direct Investment, Non-Traded Goods And Real Wages Polpat, K., Bangorn, T. u., & Paitoon, W. (2011). Does FDI Enhance Economic Growth? New Evidence from East Asia Shaner, J., & Maznevski, M. (2011). The relationship between networks, institutional development, and performance in foreign investments Takechi, K. (2011). What is Driving the Manufacturing FDI Wave in Asia? [Article]. Review of Development Economics, 15(1), 33-47 Thu Thi, H., Paitoon, W., & Bangorn, T. (2010). Does Foreign Direct Investment Promote Economic Growth in Vietnam? [Article] Vadlamannati, K. C., Tamazian, A., & Irala, L. R. (2009). Determinants of foreign direct investment and volatility in South East Asian economies