Savings, Investment & FDI Contribution To Malaysian Economic Growth In The Globalization Era

Abstract

What are the prospects and future of Foreign Direct Investment (FDI) in Malaysia now? Malaysia is undoubtedly a development success story. Throughout the post-independence period since 1957, Malaysia has enjoyed rapid economic growth with rising per capita income and price stability. Rising living standards, greater urbanization and access to health and education, and an improvement in the distribution of income have accompanied economic growth. Malaysian performance has been particularly remarkable after 1987 when the economy achieved above 7 per cent growth in seven consecutive years reaching virtual full employment in 1995. Malaysia now aspires to become a fully developed economy by 2020. This dramatic economic transformation has occurred against a background of massive shifts in the world economy as a result of increasing internationalization of production and trade. Foreign investment funds are returning to the market attracted by the corporate restructuring news and a belief that South East Asian stocks are generally undervalued. But FDI remains a big worry for the government and the last quarter figures cannot have helped. A recent survey by the Japanese Chamber of Trade and Industry in Malaysia claimed that the country no longer enjoyed a competitive advantage over its neighbors and that 22 per cent of Japanese companies operating in Malaysia were contemplating moving. In Penang more multinationals in the electronic sectors are planning to pull out of Malaysia in the next few months and relocate to China and Vietnam. So far these have all been in factories producing labor-intensive products. The main reason given for relocation is because of high labour costs. The purpose of this paper is to examine the Malaysian economic growth with emphasize on saving and investment in the context of globalization of the world economy. The main issues are: 1. Malaysian economic and Fiscal policy to stimulate economic growth. 2. The key policy shifts to guide the study of globalization and developmental implications to overall growth trends. 3. The role of foreign direct investment (FDI) and the implications of globalization for domestic employment and real wages, and poverty and income inequality.

From our analysis we found that economic development in Malaysia can be seen as a variant of the Solow model, in which savings, investment and capital accumulation are the major agents of growth. One aspect of the fast factor accumulation in this country is the important of FDI flows as a source of technology and management skills. FDI vis a vis savings and investment may have triggered export competitiveness by improving the technology, management and marketing of export industries.