IMPORTANCE OF FOREIGN DIRECT INVESTMENT IN DEVELOPING MALAYSIAN ECONOMIC GROWTH

by Karthina, Dharshini and Yuvaneswary

According to Organization for Economic Cooperation and Development (OECD)’s Benchmark Definition of Foreign Direct Investment 3rd Edition (OECD, 1999), the definition of foreign direct investment (FDI) is ‘the objective of obtaining a lasting interest by a resident entity in one economy (direct investor) in an entity resident in an economy other than that of the investor (direct investment enterprise)’’. Malaysia has involved in foreign direct investment since 1975. In 1975, Malaysia is one of the half countries in the world that involved in the foreign direct investment. Other countries that involved in the Foreign Direct Investment in 1975 with Malaysia are Iran, Ireland, Philippines, Singapore, Thailand, Vietnam and others. Malaysia has been considered as one of the earliest country that involved in the Foreign Direct Investment at 1975 as Japan, Jamaica, Republic of Korea, Hong Kong, Iceland, China, Belgium and Greenland still did not involve in the Foreign Direct Investment at that time. The increasing in the Foreign Direct Investment of a country can be measured by using the Foreign Direct Investment net inflows.

An investment can be qualify as FDI if it could afford the parent enterprise control over its foreign affiliate. In this case, International Monetary Fund (IMF) defines this control as owning 10% or more of the regular shares or voting of an incorporated firm or its equivalent for an unincorporated firm. There have typical two types of direction for FDI. Inward investment is when foreign capital occurs in local resource. The other type of FDI is outward direct investment, can also be referred as direct investment abroad which means local capital is invested in foreign resources. Foreign direct investment (FDI) or foreign investment can be defined as long term participation by country A into country B. It usually involves participation in management, joint-venture, transfer of technology and expertise. More specifically, foreign direct investment is a cross-border corporate governance mechanism through which a company obtains productive assets in another country. FDI is different from other major forms of foreign investment in that it is motivated largely by the long-term profit prospects in production activities that investor directly control (Tsen, 2005).

Moreover, the increasing in the foreign direct investment in Malaysia has increased the economic performance of Malaysia. This can be seen from the data in the analysis which shows that the increasing net flows of Foreign Direct Investment in Malaysia will directly increase the FDI of a country. Although Malaysia has involved in the Foreign Direct Investment since 1975, yet the Foreign Direct Investment that involved by Malaysia in 1975 did not consider higher when compared with Canada, Australia, Denmark and France. However, the foreign direct investment that involved by Malaysia in 1975 was considered high when compared with Philippines. Turkey, Portugal and Thailand. The increasing of the Foreign Direct Investment not only increases the economic performance of Malaysia but also enhance the standard living of the nation. The increasing of the Foreign Direct Investment has increased the standard living of the nation as the GDP per capita of Malaysian has increased from time to time. However, the impact of Foreign Direct Investment to Malaysia has decreased when economy Malaysia reaches some certain level.