How China’s FDI Affects Malaysia’s Export Performance?

Abstract

Malaysia has been experiencing increasing FDI inflows over the past decades with the changing of major contributors. Currently, China is the largest contributor to Malaysia’s net FDI inflows, while its contribution was limited in the past decade. This paper aims to provide additional evidence to the literature of the FDI’s impact on export performance through disaggregating the FDI and utilizing the quarterly data between Q1:2010 and Q1:2018. The empirical results based on the autoregressive distributed lag (ARDL) approach
reveal that China’s FDI helps promote Malaysian export activity except for the export of machinery, equipment and parts. The latter is, however, crucial in long-run growth through promoting technology advancement. This implies that China’s FDI inflow to Malaysia has a more significant impact on economic performance in the short run. Therefore, Malaysian policymakers need to provide better incentives to attract higher value-added FDI into the country to benefit in the long run.