Advances in Management and Applied Economics

Empirical Analysis of Employment and Foreign Direct Investment in Malaysia: An ARDL Bounds Testing Approach to Cointegration

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• Abstract

  This study examines the relationships between the employment and foreign direct investment (FDI) in Malaysia. The Malaysian government continues to put efforts in attracting more FDI inflows as it seems that FDI plays a major role in the economic development of Malaysia. Besides, there is general perception that the FDI inflow contributes to increase the employment opportunity in the country. Hence, we apply an empirical analysis to study the effect of FDI on the employment in Malaysia. The data span from 1970 to 2007. Several econometric models are applied including the bounds testing (ARDL) approach, and ECM-ARDL model. The results show that there is no cointegration relationship between employment and the FDI in the long-run. However, there is a causal relation between employment and FDI running from FDI to the employment. This study concluded that the FDI is found to be the significant factor contributing to the employment growth in Malaysia, but not the other way round.