Foreign portfolio investment and economic growth in Malaysia
This study examines the relationship between foreign portfolio investment (FPI) and Malaysia’s economic performance. In particular, the study analyses the relationship between FPI and real gross domestic product (GDP) using the widely adopted Granger causality test and the more recent Toda and Ya...
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| Format: | Article |
| Language: | English |
| Published: |
Pakistan Institute of Development Economics
2009
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/11819/ http://irep.iium.edu.my/11819/1/salina_Kassim_3.pdf |
| Summary: | This study examines the relationship between foreign portfolio investment (FPI)
and Malaysia’s economic performance. In particular, the study analyses the relationship
between FPI and real gross domestic product (GDP) using the widely adopted Granger
causality test and the more recent Toda and Yamamoto’s (1995) non-causality test to
establish the direction of causation between the two variables. Similar method is also
applied on the relationship between volatility of FPI and real GDP. Additionally, the
study uses an innovation accounting by simulating variance decompositions and impulse
response functions for further inferences. Using quarterly data covering the period from
1991 to 2006, the study finds evidence that economic growth causes changes in the FPI
and its volatility and not vice versa.. The findings suggest that economic performance is
the major pull factor in attracting FPI into the country. Thus, it must be ensured that the
Malaysian economy remains on a healthy and sustainable growth path so as to maintain
investor confidence in the economy.
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