AN APPLICATION OF MULTIPLE LINEAR REGRESSION ANALYSIS

THE IMPACT OF FDI AND DOMESTIC INVESTMENT ON ECONOMIC GROWTH

Abstract

 According to the World Bank, Malaysia aspires to become a high-income country by 2028. Since Malaysia joined the upper-middle-income country group in 1992, Malaysia needs to be at the stage to accelerate its economic growth to achieve its target. However, it will become a significant problem for the country if it relies more on FDI than domestic investment since many foreign investors have halted most contracts signed due to lockdown restrictions during the coronavirus pandemic. As the significance of FDI and domestic investment towards economic growth are still debatable, this paper aims to examine the impact of FDI, domestic investment, trade, interest rate, exchange rate, savings, and consumption expenditure on Malaysian economic growth by using gathered time-series data from 1979 to 2019. Based on the applied multiple linear regression analysis, our findings suggest that domestic investment, interest rate, savings, and consumption have a significant positive relationship with economic growth. However, FDI and exchange rate negatively affect economic growth, while trade openness does not influence Malaysian economic growth. Thus, domestic investment is one of the primary sources in promoting Malaysian economic growth, but not in the case of FDI. Hence, government and policymakers should strengthen domestic investment to attain Malaysia’s aspirations