Prague Economic Papers 2018, 27(2):215-231 | DOI: 10.18267/j.pep.652

The Determinants of Inward FDI in Selected ServiceS Industries in MalaysiA

Tham Siew Yean1, Andrew Jia-Yi Kam2, Nirwan bin Noh3
1 ISEAS-Yusof Ishak Institute, Singapore; Institute of Malaysian and International Studies (IKMAS), Universiti Kebangsaan Malaysia, Bangi, Selangor, Malaysia (siew_yean@iseas.edu.sg; tham@ukm.edu.my)
2 Institute of Malaysian and International Studies, Universiti Kebangsaan Malaysia, Bangi, Selangor, Malaysia (cchizz@yahoo.com / andrew@ukm.edu.my)
3 Ministry of Finance Malaysia / Institute of Malaysian and Inter-national Studies, Universiti Kebangsaan Malaysia, Bangi, Selangor, Malaysia (nirwan.noh@treasury.gov.my)

In its drive to achieve a high-income country status, Malaysia aspires to attract more private investment into the services sector. However, empirical studies on the determinants of foreign direct investment (FDI), especially in the services sector, are sparse, even more so at the industry level. The location theory asserts that FDI inflows into a host country are determined by variables related to resources, infrastructure, market conditions, cost and business environment. This paper investigates the validity of the location theory on Malaysia using a set of panel data for eight services industries from 2003 to 2010. We find that at the industry level, market size, ICT infrastructure and human capital have significantly influenced FDI inflows into the services sector. However, the impact of FDI liberalisation is not significant compared to the dynamic changes of the other variables as progress in FDI liberalization is slow and limited.

Keywords: services sector, services liberalisation, foreign direct investment, panel data, Malaysia
JEL classification: C40, F14, F23, L80, O19

Published: April 1, 2018  Show citation

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Yean, T.S., Kam, A.J., & bin Noh, N. (2018). The Determinants of Inward FDI in Selected ServiceS Industries in MalaysiA. Prague Economic Papers, 27(2), 215-231. doi: 10.18267/j.pep.652
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