Does FDI Influence Employment in Malaysia?

Abstract

The purpose of this study is to investigate the impact of foreign direct investment (FDI) on employment in Malaysia. This study employs cross-sectional by sectors data which focuses on four main variables: employment, net inflows of FDI, value of gross output and average annual real wages per worker. Employment is the dependent variable and inflows of FDI, gross output and real wages per worker are independent variables. The period of study covers 2000 to 2010. The sectors considered for the panel data include agricultural, mining and quarrying, manufacturing, construction and services. Based on the panel data analysis, FDI is found not to have a significant influence on employment in Malaysia. The insignificant of FDI may be due to the large overall variance among the data. Besides, the period selected may also have influence the data because year 2009 witnessed a significant drop in the inward flows of FDI. The use of high technology and robotic equipment among the MNEs may also influence the results. Moreover, the inflows of FDI do not evenly scattered among the by sectors cross sections. Most of the flows of FDI were in the services and manufacturing sectors. The wages indicator also does not have a significant influence on employment. The only variable that is significant is the value of gross output.