ISSN: 2222-6990
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This study has examined the causal relationships between trade openness and foreign direct investment (FDI) in Malaysia using annual time series data. Throughout this study, the exchange rate and economic growth acted as the control variables. Data were collected from 1977 to 2015 and were analysed using the unit root test and the Granger causality test. The autoregressive model was employed to remove autocorrelation from rising in this model. The result of the Granger causality test indicated that there was a unidirectional causality between trade openness and FDI. It also showed that trade openness has a positive and significant impact on the FDI. All independent variables, namely, exchange rate, economic growth and trade openness, were significant in explaining FDI inflows in Malaysia. Therefore, this study has concluded that a good combination of these independent variables would attract more inflows of FDI into Malaysia. In addition, the Malaysian government has to implement policies that favour trade openness, such as reducing trade barriers, to encourage more FDI inflows into Malaysia to promote higher economic growth.
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In-Text Citation: (Sazali, Bakar, Huey, & Ghazali, 2018)
To Cite this Article: Sazali, S. B. M., Bakar, M. A. B. A., Huey, A. Y., & Ghazali, M. S. Bin. (2018). Causal Links between Trade Openness and Foreign Direct Investment in Malaysia. International Journal of Academic Research in Business and Social Sciences, 8(1), 930–937.
Copyright: © 2018 The Author(s)
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