Analysing the impact of financial market on Malaysian foreign direct investment

• Main Author: Nur Dhania, Abdul Samad
• Format: Thesis
• Language: English; English
• Published: 2016
• Subjects: HG Finance
• Online Access: http://etd.uum.edu.my/6113/

This study investigates the impact of financial market on foreign direct investment (FDI) in Malaysia using yearly data over the period of 1981 to 2014. Using stock market and credit market as proxy of financial market, the Johansen cointegration test and Vector Error Correction Model (VECM) are employed to determine the long run relationship. The VECM results indicate that the stock market does not have significant influence on FDI while the credit market has a significant and positive impact on FDI. This shows that even though the financial market does not become the main source of financing for foreign investors, its development is still an important agenda in attracting foreign investors to invest in Malaysia. Hence, this study provides insights for policy recommendation in the future in promoting FDI. In order to attract foreign investment, policy makers should not just focus on providing various incentives, but also should look at other factors which may indirectly affect the flows of FDI, such as the development of the financial market.