Fdi Case Study

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CHAPTER 1: INTRODUCTION
1.0 Background of the Study
Research on Foreign Direct Investment (FDI) has been one of the most intensive areas of international economics in the last decade (Pan, 2002). The Economy Watch (2010) defines FDI as a type of investment involving the injection of foreign funds into an enterprise that operates in a different country of origin from the investor. More specifically, FDI refers to the investment of foreign asset into domestic goods and services and this does not include the foreign investments in stock markets (Ong, P’ng, Poon, Tan and Yong, 2012). Over the past decade, FDI has increased sharply as a major form of international capital transfer. Economic phenomena such as globalization, liberalization and economic
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Availability of these kind of resources especially minerals, agriculture product and raw material become an important determinant of FDI for host country. Malaysia, on the other hand, a medium-size country, having upper middle income developing economy, although it is largely urbanized but the state continues to develop their cultural sectors actively. This is aided well by its rich natural resources. In addition, Malaysia is in condition where it has a political stability which is highly attractive to foreign investment. Hence, FDI appears to a key driver underlying the strong growth performance experienced by the Malaysian economy. Furthermore, Malaysia government recognizes that foreign investment particularly in manufacturing helped Malaysia to improve economy growth and provide benefit of employment opportunity. In addition, FDI also acts as an agent of transformation in the Malaysian economy. This is proven with the dominance of the influx of FDI into the manufacturing sector in its transformation from agricultural economy to industrialized economy (Abdul Rahim, 2006). Wong and Jomo (2005) point out that FDI can bring in foreign exchange to be used in the payment of necessary capital and intermediate goods imports, consequently, solving the foreign exchange problems. The movement of the FDI becomes a major concern of researchers and policy maker to investigate what are the key forces that determines FDI in Malaysia. However, economists have no general consensus on the factors in determining the inflow of FDI. That would mean there have no independent variables until now to be able to consider the exact determinants of FDI. Most of the studies have shown mixed result of the determinant of FDI. The main factors motivating FDI such as rate of exchange, inflation rate, economic
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