Determinant Factors and Foreign Direct Investment in Malaysia: Cointegration and Causality Analysis

This research attempts to examine the determinants of FDI in Malaysia. The infrastructure,market size, exchange rate and inflation rate are considered independent factors that impact theFDI in this research. Yearly data from 1991 to 2020 was sourced from World Bank. The ARDLmodel was used to test the cointegration and causal relationship between the determinants andFDI. Based on the results, the infrastructure has positively influenced the FDI in the long andshort-run. The impact of market size, exchange rate and inflation rate on FDI is statisticallyinsignificant in the long-run. However, the market size and exchange rate have a significantshort run relationship with FDI but none between the inflation rate and FDI. This researchprovides decision-making insights for investors, policymakers and practitioners. It plays a vitalrole in formulating FDI related policy in Malaysia. Despite facing limitations, this researchconcluded with some recommendations for future research.