Tajul, Abdul, and Haslindar (2012) studied on the spillover effects of FDI inflows within manufacturing sector in Malaysia used correlation analysis to run a test on a data collected from the Department of Statistics Malaysia and ASEAN Secretariat and found that 14 out of 19 sub-sectors which are the industry that with high FDI involvement gets a positive spillover effect of FDI inflows thus they can increase their productivity Tajal Ariffin Masron, 2012 which then may lead to increases in Malaysia’s economy the GDP. While, the other five industry which is the non-FDI domestic firms get the negative spillover effects of FDI inflows, these industry may face crowd-out effects Tajal Ariffin Masron, 2012 as inward FDI increase the industry concentration and market power of large firms or the FDI firms which will make it hard to non-FDI industry to compete with the FDI firms and create barriers for small firms enter the market Wong H.K., 2005.
According to Hamidah et al (2016), their study found that FDI inflows significantly influence the unemployment rate in Malaysia through their analysis test on the annual data from DOSM, IMF, and UNCTAD from the year 1982 to the year 2012 with Eviews software and method used was ARDL. The result of the study shows inward FDI support significantly reduce the unemployment rate in Malaysia, especially unemployment rate that reached 7.5% in the year 1982 to the year 1991 has dropped rapidly due to the inward FDI Hamidah Muhd Irpan, 2016. Thus, the unemployment rate declined means that more jobs opportunities lead to better quality of life of a Malaysian and increase their productivity that can increase Malaysia’s GDP. For Malaysia case, the relationship between inward FDI with economic growth is positive and it is supported by Har W.M et al (2008), Manal and Liu Yao (2011), and Elsadig (2012) even though they used different methods to test the relationships such as Granger causality test, OLS test, and ARDL test.
The eight determinants of inward FDI discussed in this paper are interest rates, trade openness, inflation rate, corruption, market size, China joining WTO and exchange rate and infrastructure. However, only five of it is significant factors that affect the inward FDI which are interest rates, trade openness, inflation rate, corruption and China joining WTO. This result is supported from Aw Y.T et al (2009)’s finding.
The inward FDI can affect Malaysia’s economy positively and negatively. The positive effects that proved by Tajul et al (2012) and Hamidah et al (2016) are increase productivity which later improve Malaysia’s GDP and decrease the unemployment rate which can improve the quality of Malaysian’s life that also can improve the productivity and GDP. While, the negative effect proved by Tajul et al (2012) and Wong H.K. et al (2005) is crowd-out effect in some industries which create barrier to small and domestic industry to become success in its business and force out from the industry.