Fdi Inflow, Current Account Balance, Inflation and Interest Rate: How Do They Impact the Malaysian Economy?

Masters of Science (Banking)
UUM-IBBM

WBB 6013: SEMINAR IN BANKING

FDI Inflow, Current Account Balance, Inflation And Interest Rate: How Do They Impact The Malaysian Economy?

By

Siva Kumar Kandiah (Matric No: 89306)

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Abstract

This article seeks to find which of the macroeconomic variables among FDI inflow, current account balance, inflation and interest rate play a significant role in economic growth in Malaysia using the SPSS Regression method for a time period of 14 years from 1995 to 2008 (Oct). The results of the research indicated that FDI and inflation are not significantly related to economic growth in Malaysia during the period of study. However, CA balance and BLR are significant determinants of economic growth of Malaysia during the period of study. Inflation was noted to have a negative relationship while FDI, CA Balance and BLR were all positively related to economic growth in Malaysia.

JEL Classification: F41, C35

Keywords: FDI, Current Account, Inflation, Interest Rate
Table of contents

1. Introduction 1 1. Background 1 2. Problem Definition 5 3. Objective and Justification 6 2. Literature Review 7 3. Thereotical Framework 11 4. Methodology 12 1. Research Design 12 2. Data Source 12 5. Findings And Discussion 14 1. Descriptive Statistics 14 2. Trend Analysis 16 1. FDI and GDP 16 2. CA Balance and GDP 18 3. Inflation and GDP 20 4. BLR and GDP 22 3. Regression Analysis 24 6. Limitations 28 7. Conclusion 28 References 30 Appendix I : Summary of Literature Review 32 Appendix II: Regression Analysis Results 37
1.0 INTRODUCTION

1.1 Background

Malaysia achieved

References: Bank Negara Malaysia, 2008, Economic And Financial Developments In Malaysia In The Third Quarter Of 2008, Bank Negara Malaysia Ref. No.: 11/08/07 Bank Negara Malaysia, 2005, The Malaysian Economy in 2004 Mohd. Haflah Piei & Tiangchye Tan, 1999, An Insight into Macroeconomic Policy Management and Developments in Malaysia, Malaysian Institute of Economic Research Dazhou Chen, 2008, Country Report Malaysia, Economic Research Department, Rabobank Economic Performance And Prospects, 2006/2007, Economic Report Girijasankar Mallik & Anis Chowdhury, 2001, Inflation and Economic Growth: Evidence From Four South Asian Countries, Asia-Pacific Development Journal Vol International Monetary Fund, 2008, 2008 World Economic Outlook Imad A | |Luhrmann (2008) |International Portfolio Flows: A Global|Account Balances, net inflows in equity securities and net |in debt instruments and current account deficits. Better | | | |Perspective |outflows in debt instruments | |(2007) | |2) FDI has negative long-run impact on GDP in 1 country (3.6%).|single country where a positive uni-directional long-term | | | | |3) FDI has positive short-run impact on growth in 18% of the |effect from FDI to GDP is found to exist | |(2005) |investment: |exports as a percentage of GDP, telephone lines per 1000 of the|developed countries with large economies, a high degree of | | | |An extreme bounds analysis |population and country risk