Foreign Investment in Malaysia and Its Impact on Economic Growth Essay Example for Free

Foreign Investment in Malaysia and Its Impact on Economic ontogeny EssayForeign direct enclotheing (FDI) means an international groovy flows in which a trusty in one country creates or expands a subordinate word in another (Krugman Obstfeld, 2006). Directly, it means the subsidiary not only has the financial obligation towards its pargonnt 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 lend 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 seismic disturbance on economy and socialThe area has been widely studied by economist and among others, in vitamin E Asia, FDI is used as channel of increasing capital s tock 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 grocery development (Anwar Lan Phi, 2010). FDI increase wages of skilled and unskilled labour (Oladi, Gilbert, Beladi, 2011) and it couldincrease the household expenditure in the host country.However, the distance of investors from origin country to polish or host country plays an key role in promoting FDI in the latter. This is a sample of macroeconomic gravity impact whereby the investors easily turn 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 thewestern cultural transfers. Local cultural norm shall be adhered to during the negotiation process in order to have a win-win situation between investors and local entrepreneur. It is a lso discussed that semipolitical stress may impacted the inflow of FDI by tightening the rules and regulation which in turn will make the investment environment in destination country is less attractive compare to global environment.FDI are positive correlated with network (Shaner Maznevski, 2011) and regional integration (Nathapornpan Piyaareekul Peridy, 2009) host countries levels of financial market and institutional development, better governance and appropriate macroeconomic policies (Polpat, Bangorn, Paitoon, 2011 Vadlamannati, Tamazian, Irala, 2009) cultivatable improvement and learning experience from previous FDI (Takechi, 2011). Therefore, a good support from the government is vital in promoting the FDI in host country.Not only FDI expect good support from the government, study shows that FDI creates instability and exacerbate crisis (Kazi, 2011). The way to control FDIs in one country are defined the terms and sectors which they are allowed to invest do a thorough risk assessment on the portfolio and resolve global dispute in an organization such as field Trade Organization (Cohen, 2009).FDI and determinants are co-integ pointd. Among determinants FDI factors in Malaysia are bareness of a company, interest rates, inflation rate, China joining WTO1 and level of corruption.(Ting-Yong Tuck-Cheong, 2010). Comparing to ASEAN as a whole, FDI is looked as more market-seeking rather than profit-seeking due to growing internal markets (Siew-Yong, Chen-Chen, Hui-Boon, 2010). Contrary, Prema-chandra and Swarnim (2011) found that FDI in Malaysia has eroded compare to fount to another countries.World Trade OrganizationFacts on FDI in Malaysia (2002-2011)Annual percentage growth rate of Gross Domestic Product (GDP) at market prices based on constant local currency. Aggregates are based on constant 2000 U.S. dollars. GDP is the sum of sodding(a) value added by all nonmigratory producers in the economy plus any product taxes and minus any subsidies no t included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources2.Data from World Bank (Chart 1 and Chart 2) revealed that FDI into Malaysia has a significant increment over past decade. However, there was a drop of FDI net inflows in 2009, due to world economic recession in 2008. The uptrend is picking up to a highest point at approximately USD12 billion from the last decade. Comparing to our neighboring country, Thailand, whom has a higher(prenominal) GDP, it has the same effect except the decline trend after 2010. It might be influenced by political crisis in Thailand since 2008 that effected international companies decision to extend their business in Thailand.From Chart 3, we gathered that the gross capital formation for Malaysia approximately between 20% to 25% of our GDP, with the lowest point at 17.84% in 2009 after 2008 recession. Foreign investment inflows are fol lowing the same trend and it clearly shows that FDI dropped synchronize with capital formation following the recession.