Politická ekonomie
Politická ekonomie
Prague Economic Papers
University of Economics, Prague

Prague Economic Papers Vol. 27 No. 2

The Determinants of Inward FDI in Selected Service Industries in Malaysia

DOI: https://doi.org/10.18267/j.pep.652

[full text (PDF)]

Tham Siew Yean, Andrew Jia-Yi Kam, Nirwan bin Noh

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: foreign direct investment, Malaysia, panel data, services liberalisation, services sector

JEL Classification: C40, F14, F23, L80, O19


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