Impact of foreign direct investment & domestic investment on economic growth of Malaysia
Malaysian Journal of Economic Studies
Department of Economics, Zanzibar University, P.O. Box 2440, Zanzibar, Tanzania; Faculty of Business Management, Universiti Teknologi, MARA, 40450 Shah Alam, Selangor, Malaysia; Faculty of Economics and Management, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor, Malaysia
In this paper, we apply vector error correction modeling (VECM) to 1970-2008 data. The objective is to analyse the long-run causal relationship between foreign direct investment (FDI), domestic investment (DI) and economic growth in Malaysia. The presence of complementary/substitution effect between FDI and DI is also investigated using impulse response function and variance decomposition analysis. The results suggest a long-run bilateral causality between economic growth and DI. There is no evidence of causality between FDI and economic growth. On the other hand, the results suggest a short-run crowding-in effect between FDI and DI.