FDI is an investment which is made to serve the business interest of the investor in a company in a different nation distinct from the investor country of origin. FDI also measure of foreign ownership of productive assets, such as factories, mines and land. FDI may be classified as inward or outward. FDI inward is a typical form of what is termed as inward investment which is investment of foreign capital occurs in local resources.
Therefore FDI outward is referring to as direct investment abroad which is the local capital being invested in some foreign resource. Outward FDI may also find use in import and export dealing with a foreign resource. Increasing foreign investment can be used as one measure of growing economic globalization. There are many factors that influence the increasing and decreasing FDI inflows toward developing countries like Malaysia. Malaysia has been one of the most successful Southeast Asian countries in attracting FDI. FDI is a one ways for the developing countries to improve the economic condition by considering new strategies to attract FDI.
1.1 BACKGROUND OF STUDY
FDI refers to long term participation by a company from one country into other country. It usually involves participation in management, joint venture, transfer of technology and expertise. The increasing and decreasing FDIs FDI inflow will contribute to the economy growth or downturn. There are many factors that influence the increasing and decreasing of FDI inflows toward developing countries. This research will focus on to examine the relationships of the determinants of the factors that contribute to increase and decrease of FDI. The macroeconomics that involve in this study are inflation, exchange rate and trade balance in Malaysia. This study will determent whether the macroeconomic is significant or not to the FDI inflows in Malaysia.
1.2 PROBLEM STATEMENT
The board problem that would be discussed in this study is to determine which factors that have significant to FDI inflows in Malaysia. There are many factors that may contribute to the increasing and decreasing FDI inflows. Many researchers found that there is relationship between inflation, exchange rate, and trade balance toward the FDI in Malaysia.
1.3 RESEARCH QUESTION
In this study, there are several research questions that have been developed regarding the problem statement occurred. Some research questions are:
Is the change of inflation having relationship toward FDI inflows?
Is the change exchange rate having relationship toward FDI inflows?
Is the change trade balance having relationship toward FDI inflows?
The main research question is which of the economic factors influence the increasing or decreasing of the FDI inflows.
1.4 OBJECTIVE OF STUDY
Several studies on FDI stated there are relationship between macroeconomics to the FDI inflows in the develop countries. However, it cannot be denied that these could be several other significant economic factors that influencing the FDI inflows.
There are several research objectives:
To determine which factors among inflation, exchange rate and trade balance have significant effect to the FDI inflows.
To determine the relationship between the related factors and FDI.
1.5 SIGNIFICANT OF THE STUDY
While the research been conducted, there is several significant arise:
1.5.1 Student
This research will be significant to the students of UiTM as it will give them knowledge on the effect of macroeconomics toward the FDI and how the factors will influence the FDI inflows in Malaysia. Moreover, it does also help them to do further research on this broad area.
1.5.2 Investors
This research will be useful to investor as they can make decision by themselves about the right time to make investment toward the foreign company.
1.5.3 Companies
This research will be useful to the owner of the company as there can improve their performance by make the right decision when doing the investment to other country to improve the profitability of the company.
1.5.4 Country
It's important to help on improving economy condition in Malaysia as the benefits of FDI inflows can contribute towards economy by attract more investment, and provide the job opportunity to local employee.
1.6 SCOPE OF STUDY
The scope of this study would cover the FDI inflows in Malaysia and also the economic variables. The time horizon used in this study is single cross sectional where the economic variables may come from FDI, inflation, exchange rate and trade balance.
1.7 LIMITATION OF STUDY
1.7.1 Time
Time constraint is a one of the limitation of this study because for this study use data from 1999 until 2009 and it's just 11 years. From the previous research, the data had been used in 20 to 30 years. The longer the time period use in research, the result is more accurate.
1.7.2 Consultation
The consultation hour is difficult to decide or confirmed. It is because advisor, supervisor and student time is not same.
1.7.3 Inaccuracy of information
This has produced a difficulty in order to find an appropriate information and data to doing this study of FDI in Malaysia. This study is based on the data collected from the secondary data. While, the information from secondary data can be plagiarism because not all journals or articles is from the original author or researcher.
1.7.4 Lack of Experience
Researcher experience is importance to find sources of data in order to get the best outcome. But, researcher lack of experience in research and it may make the outcome slightly affected.
1.8 DEFINITION OF TERMS
1.8.1 FDI Inflows
FDI Inflows refers to the resulting in a net FDI inflow (positive or
negative) or stock of FDI, which is the cumulative number for a give period. FDI also refers to the long term participation by a company from one country into other country. It usually involves participation in management, joint venture, transfer of technology and expertise.
1.8.2 Inflation
Inflation represents the rise in the general level of prices of goods and services in an economy over a period of time. When inflation the purchasing power of consumer will decrease and reflect erosion in purchasing power of money. It is the percentage rate of change in price level over time and usually estimated by calculating the inflation rate of a price index or Consumer price Index.
1.8.3 Exchange Rate
Exchange rate represents the exchange value of a foreign nation's currency in terms of the home nation's currency which is 1US/RM.
1.8.4 Trade balance
Trade balance refers to the difference between the monetary value of export and import of output in an economy over a certain period. The difference between a country import and export is the largest component of a country balance of payment. These also refer to the international trade balance.
1.9 SUMMARY
In the global economy today, many developing countries competing for FDI. FDI is important factor for spurring the development of the nation. Therefore the inflows of FDI will determinant by the many factors. One of the factors is macroeconomics factor such as gross domestic product, inflation, exchange rate, money supply and others. When the inflows of FDI increase, this will give benefits to the countries. For example technology advancement, improved human resource, give the job opportunity to the local workers and others.
This study will examine the relationship between inflation, exchange rate and trade balance toward the FDI in Malaysia. Few economic variables are taken to test whether there are any significant correlation between the dependent and independent variables. The dependent for this study which is FDI inflows and the independents are inflation, exchange rate and trade balance in Malaysia.
CHAPTER 2
LITERATURE REVIEW
2.0 INTRODUCTION
Putting money in a company functioning or incorporated in another country is FDI, instead of investing in local business. Nowadays the FDI is very important to the developing countries to their economy. But the flows of FDI will determinant by others factors. The most factors to determinant the inflow of FDI is from macroeconomics variables such as trade balance, inflation, exchange rate and others. These will give effect to the FDI inflows to the development countries. The stronger FDI will give benefits to the sources of economic growth.
2.1 PREVIOUS STUDY
There are largest number of studies have been done on the FDI, both by local as well as by foreign researcher. Obviously, the main area of researches doing the studies is the key determinant relationship to the FDI.
2.1.1 Foreign Direct Investment
The study of the FDI can be found in Hooi (2008), Sahoo (2006), Hsiao and Hsiao (2004), Asiedu (2002), Billington (1999), Edwards (1990) and many more. The study stated that the different determinant will give the different result and may affect differently in different countries to the FDI inflows, especially to the development country.
2.1.2 Exchange Rate
According to the Blonigen (1997), the depreciation of value home currency its will leads to the increasing FDI of recipient country. This study also stated by Froot & Stein (1991), Klein & Rosenger (1994) and others. Furthermore, exchange rate has an insignificant effect on FDI stated by Sades (1991) and Tuman and Emmert (199). Besides that, Erramilli and D'Souza (1995) find that exchange rate volatility is one of the contributors toward external uncertainty in an economy that have a major effect on FDI inflow. In a study in Ghana, Kyereboah-Coleman and Agyire-Tettey (2008) find that volatility in exchange rate has a significantly negative impact on FDI inflow.
2.1.3 Trade Balance
The study on relationship between FDI and trade balance, find that the largest vertical FDI flows benefits from increasing the trade balance, stated by Resmini (2000) and Sign and Jun (1995). According to Fontagne and Pajot (1997) explore relationship between FDI and trade found that FDI flows and French foreign trade are complements. Inward FDI is associated with trade deficit of the host country.
2.1.4 Inflation
According to the James P. Walsh and Jiangyan (2010), found that negative relationship which is when lower inflation rate that will give benefit to attract additional FDI.
2.2 THEORETICAL FRAMEWORK
Four economic factors are selected to test the relationships toward FDI. The factors are Inflation, USD/RM Exchange Rates and Trade Balance.
2.2.1 Inflation
Some research found that there were negative relations between FDI and inflation. Akinboade, Siebrits and Roussot (2006), found that when low inflation is to be a sign of internal economic stability in the host country and when high inflation indicates the inability internal economic. This also found by Wint and Williams (2002) show that a stable economy attracts more FDI when low inflation that will promote FDI as a source of capital flow. Besides that, Glaister and Atanasova (1998) mention the effect of high inflation can cause various problems within the country to reduce its attractiveness to foreign investors.
2.2.2 Exchange Rate USD/RM
Some of research found that there positive relations between FDI and exchange rate. Froot and Stein (1991), Klein and Rosenger (1994) and Blongen (1997) stated that, a devaluation in the currency of the recipient country reduces production costs, measured in foreign currency, sincere the relative wealth of foreign investors, leading to an increase FDI inflows.
2.2.3 Trade balance
Many factors play a part in a FDI inflows contribute to economic growth. It may include the export and import of the country. According to Resmini (2000) finds that these largely vertical FDI flows, as might be expected in a sector for which international trade flows in intermediate and capital goods are important, benefit from increasing trade balance. Sigh and Jun (1995) also stated that export orientation is very important in attracting FDI and link this to the rising complementarities of trade and FDI flows.
2.3 SUMMARY
There are some relevant studies on determinants of FDI in Malaysia but prove helpful as a guideline to this study. There are a lot of studies regarding the determinants of FDI inflows from many countries, especially research for developing countries. This is because the FDI inflow is very important to the developing country.
This study examines the relationship between inflation, exchange rate and trade balance toward FDI inflows in Malaysia. The study would like to see whether there are any significant relationships between the macroeconomics variable toward FDI in Malaysia. The finding would enhance the body of knowledge and increase the understanding of the determinants the FDI. Any significant knowledge that may contribute to the body of knowledge will help the researchers found the real information to their research for references.
CHAPTER 3
METHODOLOGY AND DATA
3.0 INTRODUCTION
This segment contains the procedures and methodology that will be use for this purpose of research. Procedures for collecting and analysis data are discussed in order to provide an in depth understanding of the research. The objective of this study was to gather information on the relationship of macroeconomic toward FDI. Specifically, this study determined the significant factors that influenced the FDI inflows in Malaysia.
To achieve the above objectives, this study test on the hypothesis of factors that influence FDI inflows. Meanwhile, the research design section explained the purpose of study, and how the various issues discussed and analyzed in order to achieve the solution, which are related to the types of investigation, extent of research interference, study setting, and unit of analysis and time horizon. In this research design, decisions also have to be made for selecting the sample from the population in the area where the research is conduct.
3.1 DATA COLLECTION
Data concerning on the FDI inflows in Malaysia and the economics variables were gathered to see whether there are any correlations between the dependent and independent which are inflation rate, exchange rate and trade balance.
The secondary data will be collected from DataStream provided by BNM and Department of Statistical Malaysia. For the independent variables of inflation rate, exchange rate and trade balance, data from the Department of Statistical Malaysia and dependent variables of FDI inflows from BNM. The data were taken on monthly basis. To support the findings, the researcher also refers to the journals, articles, books and other online database.
3.1.1 Journals
Journal is primary data collection in the research. The selected journal will be use to find for past research papers which is related to this project paper. Most of the journals take from the internet. The journals that have been used in this study were including journal of economic finance, journal of marketing research and managerial finance.
3.1.2 References books
Secondary data used in this research is reference books. References book based on the Yearbook of research and development of Malaysia and others additional textbooks are used in order to obtain basic knowledge and information that usually contains discussion of theory and how to use the statistical tool to make the regression. This information is needed to support the statistical finding.
3.1.3 Internet
Internet is used in order to find additional information that can be used in the research as supporting materials such as the article about the performance of FDI in Malaysia to support this proposal.
3.2 SAMPLING FRAME
To secure an acceptable result, this study decided to use macroeconomics factors which are inflation, exchange rate and trade balance in Malaysia and also the FDI inflows within 1999 to 2009 by monthly basis. The decision to use this sample was due to the inability to collect real data to found.
3.3 SOURCES OF DATA
The secondary data will be collected from DataStream provided by BNM and Department of Statistical Malaysia. For the independent variables likes trade balance, the data collected from the Department of Statistical Malaysia. Beside that the exchange rate and inflation and also the dependent variables of FDI inflows collected the data from BNM. The data were taken on monthly basis from 1999 until 2009. These samples were represented the macroeconomics factors which are inflation, exchange rate and trade balance in Malaysia.
3.4 VARIABLES AND MEASUREMENT
The variables used in this study can be categorized into two main types which are the dependent and the independent variables.
3.4.1 Dependent Variables
The dependent variable for this study is FDI inflows which will be measured in terms of RM million.
3.4.2 Independent Variables
For this study, there are three independent variables that will be measured. There is the inflation, exchange rate and trade balance. The inflation rate measure in inflation rate in term of percentage (%). The exchange rate measure in term of RM/USD and trade balance measure in RM/million which is the export minus import over to the certain period. All the variables will be log to get the percentage and to make sure the variables are stationary.
RESEARCH DESIGN
This research is designed to explore the relationship between dependent and independent variables. In this study, it engages in hypotheses testing that will explain the certain significant correlations between economic variables and FDI inflows.
3.5.1 Purpose of the Study
The purpose of the study is to examine the relationship between the independent variables, which are inflation, exchange rate and trade balance toward the dependent variable that is FDI in Malaysia.
3.5.2 Types of Investigation
There are two types of investigation that is casual and correlation. For this study, correlation study will be used because the FDI inflows will be influence by inflation, exchange rate and trade balance in Malaysia. It shows that there are no cause and effect between the independent and dependent variables.
3.5.3 Unit of Analysis
The unit of analysis refers to the level of aggregation of the data collected during the subsequent data analysis stage. For this research design the unit analysis is individual. From this study will be looking at the data gathered from each individual preference.
3.5.4 Time Horizon
Under this study, the range of the data is monthly basis data from 1999 until 2009 in Malaysia.
THEORETICAL FRAMEWORK
This study defines the dependent variables as FDI inflows in Malaysia and it will be explained by independent variables, which are inflation, exchange rate and trade balance. The relationship can be shown in the diagram below.
Dependent variable: FDI Inflows
Independent variables: Inflation, Exchange rate and Trade Balance
Figure 3.1: Schematic Diagram (Relationship Diagram)
Independent Dependent
Inflation
Foreign Direct Investment Inflows
Exchange Rate
Trade Balance
According to the schematic diagram above, it can be elaborated that the FDI inflows are determine by the inflation, exchange rate and trade balance.
3.7 DATA ANALYSIS AND TREATMENT
The statistical tools use in the study is Multiple Linear Regression Model. This model of analysis is done to examine the simultaneous effects of several independent variables on a dependent variable that is interval scaled. In other used since is can explain the correlation between the dependent and independent variables.
Multiple Linear Regression Model:
(Equation 1)
Where;
Y = Dependent variable which represent FDI Inflows
= The constant number of equation
= Coefficient Beta value
= Independent variable which represent Inflation
= Independent variable which represent Exchange rate
= Independent variable which represent Trade Balance
= Error
3.8 HYPOTHESIS STATEMENT
A hypothesis can be defined as a logically conjectured relationship between two or more variables expressed in the form of a testable statement. There are several types of hypothesis that are statement of Hypothesis, Directional and Non-directional Hypothesis and Null and Alternate Hypothesis.
For this study, Null and Alternate Hypothesis have been use. The Null hypothesis is represented by the symbol of (H0) whereas the Alternate is (H1).
Null Hypothesis (H0)
It is the proportion that states a definitive, exact relationship between two variables. In other word, null hypothesis express the non relationship between the variables.
Alternate Hypothesis (H1)
It is the opposite of the null, a statement that express the relationship between two variables or indicating differences between groups.
To test whether this is applicable to the economic growth in Malaysia, it is hypothesized that:
Hypothesis 1
H0: There is no significant relationship between the inflation, exchange rate and trade balance towards FDI.
H1: There is significant relationship between the inflation, exchange rate and trade balance towards FDI.
Hypothesis 2
H0: There is no significant relationship between the inflation towards FDI.
H1: There is significant relationship between the inflation towards FDI.
Hypothesis 3
H0: There is no significant relationship between the exchange rate towards FDI.
H1: There is significant relationship between the exchange rate towards FDI.
Hypothesis 4
H0: There is no significant relationship between the trade balances towards FDI.
H1: There is significant relationship between the trade balances towards FDI.
SUMMARY
In the nutshell, this chapter will provide the research design that will be used in this study. The study aims to determine the relationship between macroeconomic factors which are inflation, exchange rate and trade balance towards the FDI inflows in Malaysia.
This research will be done in accordance to the objective where to know whether there is any significant relationship between the macroeconomic factors with the FDI inflows in Malaysia. This information will perhaps can be used by the investors, depositors or other financial institutions for them to make some investment decisions. Since study focuses on the data from 1999 until 2009, if would give a better picture on the decision to make the right decision to the largest company to making the investment to the countries.
CHAPTER 4
FINDING AND ANALYSIS
4.0 INTRODUCTIONS
In this chapter, it will represent the analysis of the data that have been gathered from the analysis. For this analysis, the empirical method used to analysis the data. To analysis these data, there are dependent variable and independent variables. The dependent variable for this study was FDI inflows while for the independent variables were inflation, exchange rate and trade balance.
In order to get accurate result, multiple regression models were used to get a best result. This model will analyze the affect independent variables toward the dependent variable. A special software to analyze the data was used which was Statistical Package for Social Science (SPSS). This software was very useful to get accurate results for this study.
Moreover, this chapter will test the hypotheses that have been stated in the previous chapter. It also contained the entire required table to show the important numerical data. The further explanations will be continued in the next section in this chapter.
4.1 EVALUATION OF RESULTS
4.1.1 Result and Finding Multiple Regression Model
The Multiple Linear Regression Analysis is a statistical technique that attempt to discover the relationship between the dependent variable and the independent variables. From this model, significant value that explain whether it have significant value or not is at 0.05 or 5 %. If the significant value less than 0.05, the null hypothesis rejected.
Table 4.1 : R Square and Adjusted R Square
Model
R
R Square
Adjusted R Square
Std. Error of the Estimate
1
.404a
.163
.138
1.43317
a. Predictors: (Constant), LOG_TB, LOG_INF, LOG_EXC
Based on table 4.1 above, the study shows the result of R square and adjusted R Square whereas shows the relationship between the variables. R is to measure the correlation between the dependent and independent variables.
In this study, there would be the correlation between the level of relationship between FDI inflows and the selected macroeconomics variables.
R2 value = 0.163 = 16.3 %
Adjusted R2 = 0.138= 13.8 %
By using the regression model, it tries to explain whether the dependent variable can be explained by independent variables. From the table showed, that the value of R2 which is 16.3% explained that the variation of FDI is being explained by inflation, exchange rate and trade balance. Therefore, 83.7% of the variations were explained by other determinants.
Table 4.2 ANOVA or F-Value
Model
Sum of Squares
df
Mean Square
F
Sig.
1
Regression
40.113
3
13.371
6.510
.000a
Residual
205.397
100
2.054
Total
245.511
103
a. Predictors: (Constant), LOG_TB, LOG_INF, LOG_EXC
b. Dependent Variable: LOG_FDI
Table 4.2 shows the ANOVA or the F-Value. F-Value is used to test the significant or not between independent and dependent variables. It means that the value of F-Value in the table show that the F-value is 6.510 with the significant value of 0.000. It is suggests that the null hypothesis is rejected from hypothesis 1 because the significant value is less than 0.05. In general, it's shows that the independent variables have significant relationship with dependent variables.
Hypothesis 1
H0: There is no significant relationship between the inflation, exchange rate and trade balances towards FDI.
H1: There is significant relationship between the inflation, exchange rate and trade balances towards FDI.
4.2 DISCUSSION ON RESULTS
Based on previous chapter, a linear equation has been developed:
(Equation 1)
Where;
Y = Dependent variable which represent FDI
= The constant number of equation
= Coefficient Beta value
= Independent variable which represent Inflation
= Independent variable which represent Exchange Rate
= Independent variable which represent Trade Balance
= Error
Table 4.3 : Coefficient
Model
Unstandardized Coefficients
Standardized Coefficients
t
Sig.
B
Std. Error
Beta
1
(Constant)
-20.499
8.787
-2.333
.022
LOG_INF
-.936
.307
-.329
-3.046
.003
LOG_EXC
3.337
3.602
.108
.926
.356
LOG_TB
2.443
.606
.509
4.029
.000
a. Dependent Variable: LOG_FDI
Based on the table 4.3, this can be developed the equation by adding the value of betas into the previous equation mentioned before. The equation is:
T-value = (-2.333) (-3.046) (4.029)
Significant Value= (0.022) (0.003) (0.000)
Where:
*Represent the significant level at 5% level
From this equation, it indicated a multiple regression model between dependent variables and independent variables. The significant value showed the relationship and significant of the study.
4.2.1 Inflation toward the Foreign Direct Investment
Table 4.4 : Beta and Significant Value for Inflation
Independent Variable
Beta
Significant
Inflation
-0.936
0.003
Based on the table 4.4, the result from the regression shows that the negative relationship between inflation and FDI inflow. It is indicates that an increase by 1 % of inflation rate will lead to decrease by -0.936% of FDI. The result for inflation is significant which at 0.003. It is statistically significant at 5% level and rejects the null hypothesis (H0) from hypothesis 2 and than accept the alternate hypothesis (H1)
Hypothesis 2
H0: There is no significant relationship between the inflation towards FDI.
H1: There is significant relationship between the inflation towards FDI.
The result highlight that inflation is an important determinant of FDI flows in Malaysia. This result has been supported by James P. Walsh and Jiangyan (2010), found that negative relationship which is when lower inflation rate that will give benefit to attract additional FDI.
4.2.2 Exchange Rate toward Foreign Direct Investment
Table 4.5 Beta and Significant Value for Exchange Rate
Independent
Beta
Significant
Exchange Rate
3.337
0.356
Based on the table 4.5, the result from the regression shows that the positive relationship between inflation and FDI inflow. It is indicates that an increase by 1 % of exchange rate will lead to increase by 3.337% of FDI. The result for exchange rate is an insignificant relationship which is 0.356 more than 0.05 where the change of exchange rate does not affect the FDI and the null hypothesis is fail to reject from hypothesis 3.
Hypothesis 3
H0: There is no significant relationship between the exchange rate towards FDI.
H1: There is significant relationship between the exchange rate towards FDI.
4.2.3 Trade Balance toward the Foreign Direct Investment
Table 4.6 : Beta and Significant Value for Trade Balance
Independent Variable
Beta
Significant
Trade Balance
2.443
0.000
Based on the table 4.6, the result from the regression shows that the positive relationships between trade balance and FDI inflow. It is indicates that an increase by 1 % of trade balance rate will lead to increase by 2.443% of FDI. The result for inflation is significant which at 0.000. It is statistically significant at 5% level and rejects the null hypothesis (H0) from hypothesis 4 and than accept the alternate hypothesis (H1)
Hypothesis 4
H0: There is no significant relationship between the trade balances towards FDI.
H1: There is significant relationship between the trade balances towards FDI.
The result highlight that trade balance is an important determinant of FDI flows in Malaysia. This result has been supported by Resmini (2000), finds that when larger trade balance, it's will give benefits to the country improved their FDI. Sigh and Jun (1995) also find that international trade is very important in attracting FDI flows.
4.3 SUMMARY
The main purpose of this study is to determine the relationship between the inflation, exchange rate and trade balance toward FDI. All the data for this analysis was gathered from 1999 until 2009 in monthly basis for each variable in this study.
Overall, the resulted showed that there is a significant relationship between inflation and FDI and it shows the negative relationship. Result for the trade balance shows positive relationship and significant which is when trade balance increase the FDI also increases. However, the exchange rate not significant and positive relationship toward FDI. It means that exchange rate does not have an impact toward the FDI. In conclusion, trade balance and inflation is the factors that having relationship to the FDI inflows in Malaysia.
CHAPTER 5
CONCLUSION AND RECOMMENDATION
5.0 CONCLUSION
As a conclusion, this section will summarize all the related information about this study and it will help other researchers that have the intention to do this study as their references. Moreover, there will also a recommendation about the study. This recommendation also will help others researchers to improve their study and the finding in the future.
The purpose of the study is to examine the relationship between the independent variables, which are inflation, exchange rate and trade balance toward the dependent variable that is FDI in Malaysia. The data are derived from the secondary data provided by BNM. The data has been gathered from the year 1999 to 2009 (11 years) in monthly basis.
From the finding and analysis in chapter 4, it can conclude that the inflation rate and trade balance have the biggest impact on FDI in Malaysia. According to James P. Walsh and Jiangyan (2010), found that negative relationship which is when lower inflation rate that will give benefit to attract additional FDI. Trade balance has a strong relationship toward the FDI inflow because it has positive and significant relationship compare from the others variable. Whereas the finding stated by Resmini (2000) and Sign and Jun (1995) that the largest vertical FDI inflows benefits from increasing the trade balance.
Whereas the exchange rate did not has impact toward FDI inflow. Some of research found that there positive a relation between FDI and exchange rate likes Edward (1990) and Hassan (2007). In conclusion, exchange rate has an insignificant effect on FDI stated by Sades (1991) and Tuman and Emmert (1999).
5.1 RECOMMENDATION
After all the data had been tested and analysis, based on the result obtained, there are several recommendation can be made. This recommendation can be divided into two categories which are for futures researcher and to the investors to make the investment in Malaysia.
Firstly from the futures researcher, when conducting this study, several recommendation that can be used by future researchers are include use other variables that not included in this study. For example researches can choose other independent variable which is related to the FDI inflows such as money supply, gross domestic product, taxes and others. These variables will give more information in explaining more about the relationships between independent and dependent variables. It can get better result and we can see which one of the variables more significant in increasing the FDI flows. Moreover, expand the period also can improve this study so that it will meet the objective of the study.
Secondly from the side of investors, investor can use the information from the researchers to make the right decision to invest in Malaysia in order to increase their profit and increase the FDI inflows in Malaysia. Besides that, investor must concern about the macroeconomic condition of one country that would be invest. This is because to take advantage from the situation that would be giving opportunity to the investors.
Lastly, several recommendations to the host country like Malaysia is maintaining their stability to attract more investors invest in Malaysia. For example the host country must protect their peaceful of country, maintain their political stability and others. Other than that, the host country can make promotion by doing more advertising about their country to foreign investor or the country can giving the opportunity by open the new avenue of FDI especially in services, oil and gas or energy sector. This give opportunity to the foreign investor make investment in host country and at the same time the economy of host country will improve.
REFERENCES
Ahmad Ghazali (2010), Analyzing the Relationship between Foreign Direct Investment
Domestic Investment and Economic Growth for Pakistan, International Research Journal of Finance and Economics, Vol 47, pp 123 - 131.
Abdur Chowdhury and George Mavrotas (2005), Foreign Direct Investment and Growth: A Causal Relationship, UNU/WIDER (World Institute for Development Economics Research).
Guanghua Wan and Yuqing Xing (2004), Exchange Rates and Competition
For Foreign Direct Investment, UNU/WIDER (World Institute for Development Economics Research).
James P. Walsh and Jiangyan Yu (2010), Determinants of Foreign Direct Investment: A Sectoral and Institutional Approach, IMF Working Paper, pp 1-27.
Jason Kiat (2008), The Effect of exchange rate and Inflation on Foreign Direct Investment and its relationship with economic growth in South Africa, MBA, University of Pretoria.
Jose I. Galan (2001), Determinant factors of Foreign Direct Investment: Some empirical Evidence, European Business Review, Vol. 13, pp 269-278.
James Orr (1991), The Trade Balance Effects of Foreign Direct Investment in U.S Manufacturing, FRBNY Quarterly Review Summer, pp 63-76.
Karimi, Mohammad Sharif and Yusop, Zulkornain (2009), Foreign Direct Investment and Economic Growth in Malaysia, MPRA Munich Personal RePEc Archive, Available from http://mpra.ub.uni-muenchen.de/14999 (accessed on 15/1/2011).
Maurice Kugler, Foreign Direct Investment, Wikipedia, http://en.wikipedia.org/wiki/Maurice_Kugler#Research
Marial A. Yol and Ngie Teng Teng (2009), Estimating the Domestics Determinants of Foreign Direct Flows in Malaysia: Evidence from Cointegration and Error Correction Model, Journal Management, Vol. 28, pp 3-22.
Muhammad Azzam (2010), Economic Determinants of Foreign Direct Investment in Armenia, Kyrgyz Republic and Turkmenistan : Theory and Evidence, Eurasian Journal of Business and Economics, Vol. 3 (6), pp 27-40.
Nursuhaili Shahrudin, Zarinah Yusof and NurulHuda Mohd. Satar (2009), Determinants of Foreign Direct Investment in Malaysia: What Matters Most, Journal of Economics and Finance.
Polpat Kotrajaras (2010), VImpact of Foreign Direct Investment on Economic Development: Comparative Study among Selected East Asian Countries, Ph.D. student, Faculty of Economics, Chulalongkorn University (Thailand), pp1-37.
Tony Addison and Almas Heshmati (2003), The New Global Determinants of Foreign Direct Investment Flows to Developing Countries, UNU/WIDER (World Institute for Development Economics Research).
Uma Sekaran, (2003), "Research Method for Business - A Skill Building Approach", Wiley , pp 88 - 89 , Fourth Edition.
