Title: A causal relationship between exports, foreign direct investment and income for Malaysia

Authors: P.R. Bhatt

Addresses: University of Utara Malaysia, Sintok, Malaysia

Abstract: The objective of this paper is to study foreign trade and investment dimensions of Malaysia in comparison with other ASEAN countries and to study the role of Foreign Direct Investment (FDI) to the growth of exports. Vector Autoregression (VAR) model is adopted to estimate the long-run causal relationship among exports, foreign direct investment and Gross Domestic Product (GDP). The cointegration test result shows that there exists a long-run equilibrium relationship among exports, FDI and GDP. It is found from the estimated error correction model that FDI is a significant variable and the result indicates that 1 unit increase in FDI in Malaysia will lead to 7.1 units increase in exports. The Granger causality test indicates that there is a unilateral relationship between exports and FDI and the direction is from FDI to exports which means that FDI causes exports.

Keywords: foreign direct investment; FDI; exports; error correction models; cointegration; Clive Granger; causality tests; causal relationships; national incomes; foreign trade; ASEAN; Association of Southeast Asian Nations; Indonesia; Malaysia; Philippines; Singapore; Thailand; Brunei; Burma; Myanmar; Cambodia; Laos; Vietnam; VAR; vector autoregression; long-run relationships; gross domestic product; GDP; equilibrium relationships; significant variables; unilateral relationships; global challenges; Asian markets; Asia; globalisation; business advancement.

DOI: 10.1504/JGBA.2011.041499

Journal for Global Business Advancement, 2011 Vol.4 No.2, pp.155 - 166

Published online: 25 Jul 2011 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article