Fdi Decrease in Malaysia

In: Business and Management

Submitted By debchan
Words 3368
Pages 14
Foreign direct investment (FDI) occurs when a firm invests funds in business activities out of its country of origin. In order for a firm to become involved in FDI, three conditions of Dunning’s Eclectic Theory (1993); (1) ownership, that is a company possessing an advantage which gives them a competitive edge in the international market as compared to its domestic market, (2) location, where the country a company intends to invest in must have the right pull factors which will be in favour of the investing company, and (3) internalisation, that is transferring the company’s ownership advantage is more beneficial than selling it off, must be satisfied. Emerging countries focus and rely heavily on FDI as it is a vital element which assists in boosting the country’s development and economic growth. Like other developing countries, Malaysia too depended on FDI and benefitted greatly from the strong inflow (Shahrudin, Yusof, & Satar, 2010) and transformed from an agriculture-based economy to an industrial economy (Wong, 2005). Despite being an attractive FDI destination, as well as an eminent host country to foreign investors, Malaysia has seen an 11% decline in FDI inflow (U.N. Conference on Trade and Development, 2015). A country’s rise or fall in FDI is affected by several determinants such as the market factor, trade barriers, costs, and investment climate (Hill, Cronk, & Wickramasekera, 2014). This essay will serve to discuss both domestic and global factors influencing Malaysia’s decreasing FDI inflow during 2014 and 2015, followed by a firm exiting the country due to domestic factors affecting its performance, and lastly, a conclusion to summarize the main points and supporting arguments. First and foremost, a country’s political stability is an important factor to assess when deciding which country to invest in. According to Azzimonti and Sarte (2007),…...

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