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Foreign direct investment spillover effects on Malaysia’s economic growth

ELSADIG MUSA AHMED AND NUR HAMIZAH MOHAMED AZMI, MULTIMEDIA UNIVERSITY, MALAYSIA

Abstract: This paper examines the relationship between macroeconomic activity variables of foreign direct investment (FDI) inflows, gross domestic product (GDP), human capital, labour force, absorptive capacity which showing the interaction between human capital and FDI technology that is called spillover effects and physical capital as a control variable. A time series quarterly data from the period of 1999 to 2008 was used. The methodology involved in investigating the effects of FDI spillover effects on Malaysian economic growth, was through conducting the unit root test, and the Ordinary Least Squares (OLS) regression was applied to estimate the data. Moreover, the Granger Causality test was used to test the causality between FDI and economic growth. The result indicates that FDI plays a significant role in achieving economic growth as input driven. In This regard, a significant positive relationship between human capital, labour force and absorptive capacity which to know the spill over effects on Malaysian economic growth (GDP) was found. On the other hand, the physical capital has shown negative relationship. Furthermore, the Granger Causality test result indicates that FDI causes Malaysian economic growth in terms of GDP and not the other way.
Keywords: FDI inflows, economic growth, Malaysia

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