Factors Affecting Foreign Direct Investment in Malaysia's Manufacturing Sector: An Analysis Across States

Abstract

This paper examines the effects of market demand, labor productivity, socio-economic development and provision of industrial estates on foreign direct investment (FDI) across 13 states and 1 federal territory in Malaysia. The analysis uses FDI data of the manufacturing sector and data on independent variables for the years 1990, 1995, 2000 and 2005. Results indicate positive relationships between these factors and FDI inflows in the manufacturing sector. FDI inflows are found to be most sensitive to labor productivity and GDP. The significance of socio-economic development for FDI is viewed in a long-term perspective.