Impact of exchange rate, inflation rate and gross domestic product on foreign direct investment in Malaysia

Yik, Ying (2022) Impact of exchange rate, inflation rate and gross domestic product on foreign direct investment in Malaysia. [Final Year Project Report] (Unpublished)

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Abstract

The goal of this study is to examine the effects of the Malaysian exchange rate, inflation rate and gross domestic product (GDP) on foreign direct investment (FDI). While looking at the impacts of foreign direct investment, this study incorporates developing country and economic development elements into the same model. The dependent variables include foreign direct investment. Malaysia Ringgit to US Dollar Spot Exchange Rate, Malaysia inflation and gross domestic product. To study the order of integration and connecting of the variables in the model, the empirical analysis uses Unit Root tests (ADF and PP). Johansen and Juselius Cointegration and Vector Error Correction Model. Annual time series data from 1990 on 2020 were utilised in this research. The empirical findings of the study were obtained using three main econometrics tests the Unit Root test. JJ Cointegration test and VECM Granger Causality test. In Malaysia the short run granger causality test reveals that there is no short-run causation between FDI, GDP, exchange rates and inflation rate. The results suggest that these four variables have a strong long-run connection. This study makes policy proposals to help Malaysia's economy grow and thrive.

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