*Faculty of Business and Management, Universiti Teknologi MARA, Puncak Alam, Selangor, Malaysia. maszan@uitm.edu.my
**Faculty of Business and Management, Universiti Teknologi MARA, Puncak Alam, Selangor, Malaysia. norfaiezahnordin@gmail.com
***Faculty of Business and Management, Universiti Teknologi MARA, Puncak Alam, Selangor, Malaysia. zaidi220@uitm.edu.my
****Faculty of Business and Management, Universiti Teknologi MARA, Puncak Alam, Selangor, Malaysia. sitisarahmatisa@ymail.com
Foreign Direct Investment (FDI) has an important role in developing the Malaysian economy. This study examines the short-run and long-run relationship between macroeconomic indicators and FDI, from 1982 to 2015. The macroeconomic indicators were trade openness, real exchange rate, export goods and services, real gross domestic product (GDP), and gross fixed capital formation (GFCF). The co-integrating test had shown that FDI was significantly related to trade openness, real exchange rate, export of goods and services, GDP, and GFCF. The findings of vector error correction model (VECM) indicated that a short-run relationship existed between FDI and variables like GDP and GFCF. This study found that there was long-run relationship between FDI and the macroeconomic indicators. While encouraging inflows of FDI, governments should to implement policies, to augment the macroeconomic indicators, so as to achieve the high-income status in future.
Foreign Direct Investment, Macroeconomic Indicators, Co-integrating and Vector Error Correction Model
