An Empirical Study on the Impact of Malaysian Foreign Direct Investment on Joblessness

Abstract

Foreign direct investment is an investment that comes from another country to buy assets or invest in business interests in that country. FDI is different from other types of investment, like portfolio investment, in that it entails a long-term commitment and control over the foreign business entity. An important factor in a nation's development is FDI, which promotes economic expansion, draws in outside capital, creates job opportunities, transfers knowledge and technical innovations, and enhances infrastructure. By attracting FDI, Malaysia may increase exports, diversify its economy, and improve its competitiveness globally. Moreover, FDI has the capacity to support the expansion of vital industries and sectors in Malaysia, therefore advancing the country's prosperity and sustainable development. Every country has a different FDI and unemployment rate. Consequently, this study will use the autoregressive distributed lag (ARDL) and vector error correction model (VECM) methods to determine the real relationship between FDI and the unemployment rate in Malaysia from 1982 to 2020. The analysis found that the increase in FDI inflows to Malaysia also increases the unemployment rate. This result contradicts the previous study, where FDI inflows stimulate the economy by boosting job opportunities. However, this result based on Malaysian data may explain that the major FDI inflows are relatively higher in brownfield investments than in greenfield investments, such as the joint venture between Geely and Proton.