Malaysia s International Relations and Foreign Direct Investment (FDI): A Structural Change Analysis

Transcription

1 Asan Socal Scence Vol. 6, No. 7; July Malaysa s Inernaonal Relaons and Foregn Drec Invesmen (FDI: A Srucural Change Analyss Har Wa Mun Faculy of Accounancy and Managemen, Unvers Tunku Abdul Rahman Bandar Sunga Long, 43 Selangor, MALAYSIA E-mal: harwm@mal.uar.edu.my Lam Zheng Lng Faculy of Accounancy and Managemen Unvers Tunku Abdul Rahman, MALAYSIA Chan Mew Leng Faculy of Accounancy and Managemen Unvers Tunku Abdul Rahman, MALAYSIA Lew Kha Y Faculy of Accounancy and Managemen Unvers Tunku Abdul Rahman, MALAYSIA Har Ee Lng Faculy of Accounancy and Managemen Unvers Tunku Abdul Rahman, MALAYSIA Lum Carmen Faculy of Accounancy and Managemen Unvers Tunku Abdul Rahman, MALAYSIA Absrac Ths sudy ams o denfy he effec of nernaonal relaons and he presence of srucural change usng Analyss of Covarance (ANCOVA and Chow es respecvely. I also ams o examne he long run relaonshps among Malaysa s GDP and nward FDI, as well as among Malaysa s oal FDI and nward FDI akng no consderaon of nernaonal relaons usng Engle-Granger es. Furhermore, Error Correcon Mechansm (ECM s used o examne wheher he varables are converge n he lng run. Ths sudy suppors ha nernaonal relaon affecs nwards FDI from all seleced counres (Japan, Uned Saes, Sngapore and Germany. In addon, nwards FDI from respecve counres have long run relaonshp wh Malaysa s GDP and Malaysa s oal FDI. I also found ha he respecve varables are convergng n he long run. Wh hs fndng n mnd, nernaonal relaons-focused polces can be creaed n order o boos up Malaysa s FDI nwards and growh. Keywords: Inernaonal relaons, Guanx, FDI, GDP, Malaysa, Srucural change analyss 56 ISSN 9-7 E-ISSN 9-5

2 Asan Socal Scence Vol. 6, No. 7; July. Inroducon Ancen Easern war sraegss beleved n exsence of hdden resources ha can be of grea use n war fare. For example, Sun Tzu has a full chaper each on he use of wo hdden resources, whch are erran and fre n hs Ar of War. Kongmng (also known as Zhuge Lang, a renowned Chnese ancen war sraegs who was he Chancellor of Shu Kngdom durng he era of hree kngdom recognzed he exsence of wo knds of forces. One knd s vsble solders armed wh weapons. The oher knd s nvsble solders, whch he referred o all sors of naure such as he sun, he moon, he sars, he wnd, he clouds, waer, fre, hunder and lghnng, mounans and rvers. In modern economc conex, here are hdden resources oo. Inernaonal relaons s beleved o be one of hem, whch could have grea mpac o economc bu unforunaely, ofen overlooked. Inernaonal relaons have usually been assumed (gnored as an endogenous varable n varous economc modelng, n whch s effec would no explcly beng capured by he model. Malaysa s a mul-racal socey comprses of many ehnc groups, manly Malay, Chnese and Indan. As Malays are predomnanly Muslm, esablshmen of an Ummah nework as proposed by Har, Lam & Lew (9 may enhance FDI nflow beween Islamc counres. Malaysa s hsorcal background as former colonal of Brsh and s conemporary nernaonal assocaon wh Commonwealh, regonal blocks lke ASEAN and varous oher nernaonal bodes provde ample hdden resources n he form of nernaonal relaons. Hence, hs adds o he sgnfcan of hs sudy. Example of effor based on nernaonal relaons s he Look Eas polcy (LEP nroduced n he begnnng of he 98s by he hen Malaysa Prme Mnser Mahahr bn Mohammad o encourage a closer look a work ehcs, managemen syles and values of successful Eas Asan economes, such as Souh Korea and Japan (Furuoka, Lo & Kao, 8. In year 4, foregn drec nvesmen (FDI also faced sgnfcan declne due o compeons form lower cos manufacurng counres. Delay n applcaon processng, slow decson makng by local auhores and absenness of a one-sop cenre for busnessman sums up o he me-consumng bureaucracy n Malaysa. Year 5 sgnfcanly shows ha Malaysa s FDI has shrunk o a mserable sae. Naonal Economc Acon Councl (NEAC group member Zanal Aznam Yusof also saed hs regre ha Malaysa has sared losng s compeve edge (Lm, 6. FDI for he frs quarer of 9 has only been 4. bllon rngg compared o 46 bllon rngg n 8 (Malaysa Daly News, 9. Hence, he sudy of possbly of ulzng nernaonal guanx o arac FDI o Malaysa (or any oher developng counres becomes more mporan. Inernaonal relaons are beleved o be able o ac as helpng hand o foser FDI. I s also known as guanx from he Chnese perspecve, n whch refers o he exchanges of favors ha domnae busness acvy, where conrac s enforced parly by an nformal socal relaonshp (Chow, 997. Quong Jacob (98; ced n Xn and Pearce 996, guanx can be made closer eher by a socal neracon ha conrbues o posve affec (ganqng, or by helpng, n whch boh rely on gf gvng as an ndcaon of goodwll and respec. Snce he prncple of farness or equal opporuny has been volaed n he guanx way of busness conduc, Weserner hreas hs ype of busness conduc as unehcal or corrupon (Love, Smmons & Kal, 999. On he oher hand, guanx ype of busness conduc could enhance he relaon and rus of nvolved pares. Through he rus bul up by boh pares, could help o reduce he rsk and afford beer busness conrol. Perhaps from he macroeconomc pon of vew, guanx beween counres, or we shall known as nernaonal relaons, could lead o economc growh as well as encouragng nward of FDI from good-relaonshp or frendly counres. In addon, nernaonal relaons could help o reduce adverse selecon, n whch allows nvesors o beer dsngush beween good and bad nvesmens. Ths can lead o hgher expeced revenues for he foregn nvesors and also ncrease he confdence of he nvesors oward he counres. Inernaonal relaons could be developed hrough vss by governmen auhores, polces, economc relaons, polcal relaons and oher means. Besdes, he mporan of nernaonal relaons has been conssen wh French phlosopher, Perre Bourdeu s concepualzaon of socal capal. Hs socal capal concep manly refers o connecons whn and beween socal neworks as well as connecons among ndvduals, whch concdenly smlar o he concepual of relaonshp neworkng or guanx of he Orenal (Har, Lam & Lew 9. Dsngush example s he Chnese Bamboo nework. Noneheless, nernaonal relaons was encryped as endogenous varable n deermnng effec on FDI, hus s mporan s no analyzed explcly as an exogenous facor. Hence, he paper ams o ( examne he presence of long run relaonshp beween Malaysa s oal GDP and nflow of FDI from seleced counres (classfed as Model as well as he long run relaonshp beween Malaysa s oal FDI and nflow of FDI from seleced Publshed by Canadan Cener of Scence and Educaon 57

3 Asan Socal Scence Vol. 6, No. 7; July counres ( Model afer akng no accoun he effec of nernaonal relaons, ( ndenfy he effec of nernaonal relaons, and ( examne he exsence of srucural change before and afer he sgnfcan even happened on he parcular counry.. Leraure Revew. Revew on FDI and GDP The resuls of FDI effecs on economc growh have been nconclusve and sll he subjec of exensve publc debae. The mporance of FDI on economc growh had drawn aenon of economss and researchers, prompng varous papers o be carred ou o nvesgae he effec of FDI on economc growh (L & Lu, 4; Marwah & Tavakol, 4 and o fnd causaly relaonshp beween FDI and economc growh (Chakrabory & Basu, ; Gao, 4; Chowdhury & Mavroas, 6; Hansen & Rand, 6; Hsao & Hsao, 6; Chakrabory & Nunnenkamp, 8; Frmpong & Abaye, 8. Few papers saed ha here are bdreconal effec beween FDI and economc growh, n whch FDI can affec economc growh and economc growh also can affec FDI (Chakrabory & Nunnenkamp, 8; Hsao & Hsao, 6; Choe, 3; Chakrabory & Basu,. Boh L and Lu (4 and Hansen and Rand (6 clamed ha s possble ha FDI no only has posve effec on economc growh bu also negave effec. Chowdhury and Mavroas (6 found ha s GDP ha causes FDI n Chle and no vce versa; smulaneously a bdreconal causaly beween GDP and FDI n he case of boh Malaysa and Thaland. On he conrary, Gao (4 and Carkovc and Levne ( poned ou ha here s no drec causal relaon beween FDI and economc growh. Frmpong and Abaye s (6 sudy on Ghana found no causaly beween FDI and growh for he overall and pre-srucural adjusmen program (pre-sap perod ye FDI caused GDP growh durng he pos SAP perod. Marwah and Tavakol (4 explaned ha FDI have posve conrbuon. Oher conrbuon from FDI ncludes playng an mporan role as one of he major exernal sources of fnancng (Arf, 7, foser echnologcal progress n he hos counry (Neuhaus, 6 and develop human capal resources by geng her employees o receve ranng (EconomyWach, n.d. (a. Oher emprcal resuls ha suppor posve relaonshp beween FDI and economc growh nclude Balasubramanyam e al (996, Olofsdoer (998, Borenszen e.al (998 and Bengoa and Sanchez-Robles (3. Zhang ( found ha growh s enhanced by FDI. Meanwhle, he negave effec of FDI s due o he crowdng ou of domesc capal or developmen of enclave economes (Hsao & Hsao, 6. FDI also have negave effec on GDP va s neracon wh echnology gap, n whch a large echnology gap wll end o slow down he economc growh (L & Lu, 4. Gao (4 however suggess boh nward FDI and economc growh respond endogenously o economc negraon, as economc negraon gves rse o FDI, leads o expanson of research and developmen (R&D acvy n he ndusral core, and ncreases he world growh rae. Besdes, FDI self s nfluenced by some oher facors such as changes n echnology, rade and nvesmen polces, and changes n capal markes (Graham & Spauldng, 4, naural resources and cheap labour force, nfrasrucural facors lke elecommuncaons and ralways (EconomyWach, n.d. (b as well as sable macroeconomc envronmen (Neuhaus, 6.. Revews on Inernaonal Relaons (Guanx wh GDP and FDI Inernaonal relaon, whch s seen as guanx a nernaonal level s beleved o conrbue o he economc growh. In fac, guanx s an nseparable par of he Chnese busness envronmen, whch s fundamenal o permeae no he Chnese socees (Buckley, Clegg, & Tan, 6, ye could be vewed dfferenly beween Easern and Wesern perspecve. Alhough he nfluence of Chnese and phenomenon of guanx are expandng hroughou Eas Asa wh he ncreasng economc mporance of Chna, ye remans argumenave of how guanx affec frm s performance and wha s he mporance of guanx (Park & Luo, ; Xn & Pearce, 996; Buckley, Clegg, & Tan, 6. Varous researches also argued on how ransnaonal operaons are accomplshed hrough neworks of personal and busness relaonshps (Yeung, 997; Goldberg, Henkel & Lev, 5. Then agan, boh Wesern busness pracce and guanx-ype sysem, whch are dfferen ypes of busness approach are beleved o have dfferen mpac on he economc growh (Love, Smmons & Kal, 999. Love, Smmons and Kal (999 evaluae guanx from an ehcal perspecve and pon ou smlares beween he ancen sysem of guanx and emergng Wesern busness pracces. Snce guanx refers o Chnese sysem of dong busness on he bass of relaonshp, papers regardng guanx are mosly based on Chna and evaluae hrough frms level. For example, Buckley, Clegg and Tan (6 suded four frms, Park and Luo ( suded 8 frms across varous ndusres n Chna, whereas Xn and Pearce (996 suded 3 frms, n whch frms are beng caegorzed no hree ypes, sae-owned, prvaely owned 58 ISSN 9-7 E-ISSN 9-5

4 Asan Socal Scence Vol. 6, No. 7; July and collecve hybrds, usng daa based on 99. Smlarly, Yeung (997 suded headquarers and 63 subsdares of Hong Kong ransnaonal corporaons (TNCs operang n he ASEAN regon, n whch hese corporaons are specfed no hree dmensons, exrafrm, nerfrm, and nrafrm. Guanx also can be evaluaed hrough he labor force nvolved n frm producon (Love, Smmons & Kal, 999. Whle mos focused on Chna, Goldberg, Henkel and Lev (5 suded mpac of human neracon wh FDI, focusng on US, based on FDI daa n 999 and varables such as average ravel from 996 o 999, common language and dsance. Anyway, a closer relaonshp beween frms can leads o beer frm performance and economc growh. Yeung (997 also explaned ha he role of guanx, or personal relaonshps n socal and busness neworks, s no only crucal n smulang economc growh bu also spearheadng foregn drec nvesmen (FDI from Hong Kong TNCs (HKTNCs no he ASEAN regon. Ths s suppored by Goldberg, Henkel and Lev (5, who sad ha human neracon can ncreased nward FDI. Thus, s possble ha wh he nernaonal relaons, could ncrease GDP and FDI of one counry. Fndngs ndcaed ha guanx can conrbue o frm growh hrough marke expanson and helps frm o poson self more compevely n he marke (Park & Luo,. I s vewed as more mporan for prvae companes compare o oher ypes of organzaon, o compensae for he lack of formal nsuonal suppor (Xn & Pearce, 996. Good guanx wh he governmen auhores creae favorable operang envronmen by avodng excessve governmen nference (Buckley, Clegg, & Tan, 6. Anyway, ncreased nernaonal relaons can ncrease nward FDI from one counry o anoher counry (Goldberg, Henkel & Lev, 5; Yeung, 997. Due o he ncreasng nfluence of Chna, guanx-ype sysem may be adaped by Wesern counres n he fuure, and a convergence may resul from boh Wesern and Easern sysem, whereby each ncorporaes n he mos effecve aspec of he oher (Love, Smmons & Kal, Daa and Mehodology In hs paper, he Malaysa s oal FDI, oal GDP and nernaonal relaons are he focus of sudy. The annual daa of FDI nflow o Malaysa range from year 97 o 7 for seleced counres (Japan, Uned Saes, Sngapore and Germany. There are oal of 36 observaons for each counry. The daa for nflow of FDI from Japan, Uned Saes, Sngapore and Germany were obaned from Malaysan Developmen Auhory (MIDA manly from her Annual Repors and specal requess. The daa for GDP was obaned from Inernaonal Moneary Fund (IMF for Malaysa, Japan, Uned Saes, Sngapore, and Germany. Two models wll be creaed o n whch hese models are akng no accoun he effec of nernaonal relaons. The frs model s he relaonshp beween nward FDI from seleced four counres (Japan, U.S., Sngapore and Germany and Malaysa s oal GDP, namely Model. The second model s relaonshp beween nward FDI from seleced counres (Japan, U.S., Sngapore and Germany and Malaysa s oal FDI, namely Model. Thus, he dependen varables for Model and Model are Malaysa s oal GDP and Malaysa s oal FDI respecvely wh ndependen varables of he nflow of FDI from seleced counres. 3. Un Roo Tes Un roo reamen of he daa seres s underaken o esablsh her order of negraon. The cenral dea behnd hs exercse s o asceran wheher, n he presence of srucural breaks n he daa, he seres are negraed of order one or oherwse (Narayan, 5. One of he man concerns n hs paper s wh he mplcaon of srucural breaks on un roos. Gven ha DF and ADF es do no ake no accoun he mpac of srucural breaks so we appled Perron es o examne he saonary for srucural change of he me seres. In order o eneran varous hypoheses concernng he effec of nernaonal relaons n Malaysa, consder he regresson equaon (see Enders, 4: y = a k + DL + µ D p + a + a y + β y + ε = µ (3.7 y = naural base of he logarhmc of Malaysa s oal GDP n year for Model and naural base of he logarhmc of Malaysa s oal FDI n year for Model Publshed by Canadan Cener of Scence and Educaon 59

5 Asan Socal Scence Vol. 6, No. 7; July y = he naural base of he logarhmc of Malaysa s oal GDP n year n lagged one year for Model & he naural base of he logarhmc of Malaysa s oal FDI n year n lagged one year for Model D p (The year of he srucural break = and zero oherwse D = for all begnnng n he year of srucural break and zero oherwse L The year of srucural break for seleced counres as shown below: Counry Japan Uned Saes Sngapore Germany Year of srucural break 98 (Look Eas Polcy 998 (Conroversal sackng of Anwar Ibrahm 98 (Mahahr became Prme Mnser 98 (Mahahr became Prme Mnser Under he null hypohess of a one-me change n he level of a un roo process, a =, a =, and µ. Under he alernave hypohess of a permanen one-me break n he rend saonary model, a < and µ. Lag lenghs (.e., he values of k were deermned usng -ess on he coeffcens β. The value k was seleced f he -sasc on β k was greaer han.6 n absolue value and he -sasc on β for >k was less han.6 (Enders, 4. The parameer ha we are neresed n he regresson equaon 3.7 s a, a and µ. We wll use p-value o decde wheher he null hypohess wll be rejeced or no n whch s auomacally generaed by E-vews. As he alernave hypohess s sae a <, a and µ, null hypohess wll be rejeced f p-value s less han %, 5% or %. However, based on he alernave hypohess for a, s a one-al es for hs parcular parameer. Along wh hs, s p-value whch auomacally generaed by E-vews wll be dvded by wo. Frs, he Perron es wll be performed wh he level form of he seres and f he seres s no saonary, we wll connue he es wh frs dfferences of he seres. All he -sascs and p-values for he parameers ( a, a, a, µ and µ wll be presened n he parenheses and brackes n he resul Table 4., 4.3 and 4.4. If he null hypohess s rejeced, sayng ha he seres s rend saonary wh a srucural break n he rend funcon. If he Perron es s resul shows non-saonary a he level form of he seres, conegraon es wll be used o prove ha here s long run relaonshp beween he varables and hus spurous relaonshp can be avoded. 6 ISSN 9-7 E-ISSN 9-5

6 Asan Socal Scence Vol. 6, No. 7; July 3. Engle-Granger Tes The conegraon es on he varables wll be performed by usng he Engle-Granger approach. If he seres s non-saonary, we wll run he followng equaons for all he seleced counres respecvely by usng OLS mehod: Y = β + Y = α + β D + X α + D β D X 3 + ν (Model (3.8 β + ( α + ( X α D X 3 + µ (Model (3.9 In order o deermne wheher he varables are conegraed, denoe he resdual from he equaons above by ν and µ.the ν and µ seres are he esmaed values of he devaons from he long run relaonshp. I followed by regressons s esmaed by usng he ADF es: (Model (3. v = λ v + ε µ + (Model (3. = λµ ε λ and λ are he parameers of he lagged one of he error erm, and ε and ε are he whe-nose dsurbances. The null hypohess s λ =, represen here s no conegraon beween varables, whle alernave hypohess s λ =, represenng here s a conegraon beween varables and =,. The null hypohess wll be rejeced when he es sasc s greaer han crcal value, sayng ha a saonary combnaon of he nonsaonary varables has been found and hus he varables are conegraed. In oher words, long run relaonshp exss beween varables and hence he varables wll mee n one pon no maer how hey veer from he long run pah n he shor run. 3.3 Error Correcon Mechansm (ECM If he varables are conegraed, he followng process nvolve formng he ECM whch n he conex of Malaysa s oal GDP and nward FDI from dfferen counres o Malaysa as well as Malaysa s oal FDI and nward FDI from dfferen counres o Malaysa. Ths could be form an equaon as follow: Y k = k = π + δecm + π Y + γ X + ϕ (3. = Where denoes as he frs dfference operaor, s changes of he lagged value of Malaysa s oal GDP and also changes of he lagged value of Malaysa s oal FDI, s consdered as he speed of adjusmen coeffcens, s he lagged one of he error from he conegrang regresson, s changes of lagged value of he nflow of FDI from dfferen counres o Malaysa, ϕ s whe-nose dsurbances, and =,, Analyss of Covarance (ANCOVA Inernaonal relaons wll be reaed as dummy varable n order o examne s effec on he relaonshp beween he nward FDI from seleced counres and Malaysa s oal GDP as well as on he relaonshp beween nward FDI from seleced counres and Malaysa s oal FDI. In order o examne he effec of nernaonal relaons, wo models are creaed. Model : To examne he effec of nernaonal relaons on he relaonshp beween nward FDI from seleced counres and Malaysa s oal GDP, an ANCOVA model wll be creaed as shown below: Publshed by Canadan Cener of Scence and Educaon 6

7 Asan Socal Scence Vol. 6, No. 7; July Y = β + β D + β + ( X β 3 D X + ν (3.3 Where: Y = naural base of he logarhmc of Malaysa s oal GDP n year D = Dummy varable of nernaonal relaonshp n lagged one year for US, Sngapore and Germany and lagged wo years for Japan. ( f here s nernaonal relaonshp, oherwse X = naural base of he logarhmc of seleced counres FDI whch nflows o Malaysa n year Wh assumpon of homoscedascy, wo equaons can be derved from ANCOVA model (refer o equaon 3.3. The frs equaon s he mean of Malaysa s oal GDP funcon for frs perod whle he second equaon s he mean of Malaysa s oal GDP funcon for second perod as shown below: Equaon : E ( Y D = β + β X (3.4 Equaon : E ( Y D =, X = ( β + β + (β + β 3 X (3.5 Model : To deec he presence of srucural change on he relaonshp beween seleced counry s FDI and Malaysa s oal FDI, an ANCOVA model wll be creaed as shown below: Where: Y = α + α D + α + ( X Y = naural base of he logarhmc of Malaysa s oal FDI n year α 3 D X + µ (3.6 D = Dummy varable of nernaonal relaonshp n lagged one year for US, Sngapore and Germany and lagged wo years for Japan. ( f here s nernaonal relaonshp, oherwse X = naural base of he logarhmc of seleced counres FDI whch nflows o Malaysa n year Wh assumpon of homoscedascy, wo equaons can be derved from ANCOVA model (refer o equaon 3.6. The frs equaon s he mean of Malaysa s oal FDI funcon for frs perod whle he second equaon s he mean of Malaysa s oal FDI funcon for second perod as shown below: Equaon : E ( Y D = α + α X (3.7 Equaon : E ( Y D =, X = ( α + α + ( α + α 3 X (3.8 6 ISSN 9-7 E-ISSN 9-5

8 Asan Socal Scence Vol. 6, No. 7; July 3.5 Chow Tes The dea behnd he Chow es s ha f n fac here s no srucural change hen he RSS R should no be sascally dfferen. Hence, he sascal formula for Chow es s shown as below: and RSSUR F = ( RSS ( RSS UR R RSS UR / k /( n + n k Hence, we rejec null hypohess when he esmaed value s sgnfcan a %, 5% or % and sayng ha here s srucural change on he relaonshp beween Malaysa s oal GDP and nward FDI from seleced counres (Model as well as on he relaonshp beween Malaysa s oal FDI and nward FDI from seleced counres (Model. 4. Resuls and Inerpreaon 4. Un Roo Tes Snce all he seres do no appeared o be sgnfcan for he hree parameers ( a, a, µ smulaneously concerned, he null hypohess s no rejeced. I s concluded ha all he seres are non-saonary for srucural break for boh level form and frs dfference due o sgnfcan even for dfferen counres. Hence, Engle-Granger es s carred ou o es wheher non-saonary varables are conegraed or spurously relaed. 4. Engle-Granger Tes All he es sascs n Model and Model are sgnfcan o rejec he null hypohess of no conegraon relaonshp beween Malaysa s oal GDP and FDI from seleced counres (Model and beween Malaysa s oal FDI and FDI from seleced counres (Model. I would be concluded ha a saonary combnaon of he non-saonary varables has been found and hus ha he varables are conegraed. In oher words, here s long run relaonshp beween he varables and so here s no spurous regresson problem n boh models. 4.3 Error Correcon Mechansm (ECM The error correcon for Model s sascally sgnfcan for counry of Japan, Uned Saes and Sngapore excep Germany. However, wh all counres ECM generaed have negave sgns, s concluded ha hese varables have converge n he long run. In oher words, Malaysa s oal GDP and nward FDI from he parcular counry (Japan, Uned Saes, Sngapore and Germany have shor run relaonshp n whch ECM wll ry o rensae he equlbrum n he case hese varables veer from her long run pah. As for Model, he error correcon s sascally sgnfcan for Sngapore and Germany excep Japan and Uned Saes. However, as he ECM all he counres n Model have negave sgns, we srongly suggesng ha he varables have converged n he long run. Ths means here s an exsence of shor run relaonshp beween Malaysa s oal FDI and nward FDI from seleced four counres. 4.4 Analyss of Covarance (ANCOVA 4.4. Model Japan Esmaon model for Japan was generaed as shown below: Y = D X +.66 ( D X (4. From (4., wo equaons can be derved whch are: GDP FDI from Japan regresson, 97-98: Y = X (4. GDP FDI from Japan regresson, 98-7: Y = X (4.3 Publshed by Canadan Cener of Scence and Educaon 63

9 Asan Socal Scence Vol. 6, No. 7; July Holdng oher varables consan, when nernaonal relaons exs beween Malaysa and Japan (dummy=, Malaysa s GDP wll ncrease more han he perod whou nernaonal relaons exs by.66% on average whle Malaysa s oal GDP wll be lowered by 4.4 when here s no nflow of FDI from Japan. Adjused R² s.7, means ha 7.% of he varaon n Malaysa s oal GDP can be explaned by varaon n nernaonal relaons and nward FDI from Japan akng no accoun sample sze and number of ndependen varables. Uned Saes Esmaon model for US was generaed as shown below: Y = D +.47 X.35 ( D X (4.4 From (4.4, wo equaons can be derved whch are: GDP FDI from US regresson, : Y = X (4.5 GDP FDI from US regresson, 998-7: Y = X (4.6 Holdng oher varables consan, when nernaonal relaons exs beween Malaysa and US (dummy=, Malaysa s oal GDP wll decrease more han he perod whou nernaonal relaons exs by.35% on average and Malaysa s oal GDP wll be ncreased by when here s no nflow of FDI from US. Adjused R² s.8, means ha 8.% of he varaon n Malaysa s oal GDP can be explaned by varaon n nernaonal relaons and nward FDI from US akng no accoun sample sze and number of ndependen varables. Sngapore Esmaon model for Sngapore was generaed as shown below: Y = D X ( D X (4.7 From (4.7, wo equaons can be derved whch are: GDP FDI from Sngapore regresson, 97-98: Y = X (4.8 GDP FDI from Sngapore regresson, 98-7: Y = X (4.9 Holdng oher varables consan, when nernaonal relaons exs beween Malaysa and Sngapore (dummy=, Malaysa s oal GDP wll ncrease more han he perod whou nernaonal relaons exs by.337% on average and Malaysa s oal GDP wll be lowered by 4.83 when here s no nflow of FDI from Sngapore. Adjused R² s.8534, means ha 85.34% of he varaon n Malaysa s oal GDP can be explaned by varaon n nernaonal relaons and nward FDI from Sngapore akng no accoun sample sze and number of ndependen varables. Germany Esmaon model for Germany was generaed as shown below: Y = D +.46 X ( D X (4. From (4., wo equaons can be derved whch are: GDP FDI from Germany regresson, 97-98: Y = X (4. GDP FDI from Germany regresson, 98-7: Y = X (4. Holdng oher varables consan, when nernaonal relaons exs beween Malaysa and Germany (dummy=, Malaysa s GDP wll ncrease more han he perod whou nernaonal relaons exs by.546% on average and Malaysa s oal GDP wll be lowered by.67 when here s no nflow FDI from Germany. Adjused R² s.8766, means ha 87.66% of he varaon n Malaysa s oal GDP can be explaned by varaon n 64 ISSN 9-7 E-ISSN 9-5

10 Asan Socal Scence Vol. 6, No. 7; July nernaonal relaons and nward FDI from Germany akng no accoun sample sze and number of ndependen varables. Based on he esmaon oupu, boh he dfferenal nercep, β and slope coeffcens, β 3 are sascally nsgnfcan for US, srongly suggesng ha here s no effec of nernaonal relaons n he relaonshp beween Malaysa s oal GDP and nflow FDI from US beween wo perods. On he oher hand, he dfferenal nercep, β and slope coeffcens, β 3 are sascally sgnfcan for Japan, Sngapore and Germany, srongly ndcang ha he effec of nernaonal relaons on he relaonshp beween Malaysa s oal GDP and nflow FDI from Japan Sngapore and Germany s exs Model Japan An esmaon model for Japan was generaed as shown below: Y = D X +.3 ( D X (4.3 From (4.3, wo equaons can be derved whch are: Toal FDI FDI from Japan regresson, 97-98: Y = X (4.4 Toal FDI FDI from Japan regresson, 98-7: Y = X (4.5 Holdng oher varables consan, when nernaonal relaons exs beween Malaysa and Japan (dummy=, Malaysa s oal FDI wll ncrease more han he perod whou nernaonal relaons exs by.3% on average and Malaysa s oal FDI wll be lowered by f here s no nflow FDI from Japan. The adjused R² s.9, means ha 9.% of he varaon n Malaysa s oal FDI can be explaned by varaon n nernaonal relaons and nward FDI from Japan akng no accoun sample sze and number of ndependen varables. Uned Saes Esmaon model for US was generaed as shown below: Y = D X. ( D X (4.6 From (4.6, wo equaons can be derved whch are: Toal FDI FDI from US regresson, : Y = X (4.7 Toal FDI FDI from US regresson, 998-7: Y = X (4.8 Holdng oher varables consan, when nernaonal relaons exs beween Malaysa and US (dummy=, Malaysa oal FDI wll decrease more han he perod whou nernaonal relaons exs by.% on average and Malaysa s oal FDI wll be ncreased by f here s no nflow FDI from US. The adjused R² s.8434, means ha 84.34% of he varaon n Malaysa s oal FDI can be explaned by varaon n nernaonal relaons and nward FDI from US akng no accoun sample sze and number of ndependen varables. Sngapore Esmaon model for Sngapore was generaed as shown below: Y = D X +.54 ( D X (4.9 From (4.9, wo equaons can be derved whch are: Toal FDI FDI from Sngapore regresson, 97-98: Y = X (4. Publshed by Canadan Cener of Scence and Educaon 65

11 Asan Socal Scence Vol. 6, No. 7; July Toal FDI FDI from Sngapore regresson, 98-7: Y = X (4. Holdng oher varables consan, when nernaonal relaons exs beween Malaysa and Sngapore (dummy=, Malaysa s oal FDI wll ncrease more han he perod whou nernaonal relaons exs by.54% on average and Malaysa s oal FDI wll be lowered by f here s no nflow FDI from Sngapore. The adjused R² s.963, means ha 9.63% of he varaon n Malaysa s oal FDI can be explaned by varaon n nernaonal relaons and nward FDI from Sngapore akng no accoun sample sze and number of ndependen varables. Germany Esmaon model for Germany was generaed as shown below: Y = D X +.53 ( D X (4. From (4., wo equaons can be derved whch are: Toal FDI FDI from Germany regresson, 97-98: Y = X (4.3 Toal FDI FDI from Germany regresson, 98-7: Y = X (4.4 Holdng oher varables consan, when nernaonal relaons exs beween Malaysa and Germany (dummy=, Malaysa s oal FDI wll ncrease more han he perod whou nernaonal relaons exs by.53% on average and Malaysa s oal FDI wll be lowered by.789 f here s no nflow FDI from Germany. The adjused R² s.855, means ha 8.55% of he varaon n Malaysa s oal FDI can be explaned by varaon n nernaonal relaons and nward FDI from Germany akng no accoun sample sze and number of ndependen varables. Based on he esmaon oupu, boh he dfferenal nercep, α and slope coeffcens, α 3 are sascally nsgnfcan for US, srongly suggesng ha here s no effec of nernaonal relaons on he relaonshp beween Malaysa s oal FDI and nflow FDI from US beween wo perods. On he oher hand, he dfferenal nercep, α and slope coeffcens, α 3 are sascally sgnfcan for Japan, Sngapore and Germany, srongly ndcang ha he effec of nernaonal relaons on he relaonshp beween Malaysa s oal FDI and nflow FDI from Sngapore, Germany and Japan s exs. 4.5 Chow Tes 4.5. Model Wh degree of freedom of and 3, he crcal values are 3.3 and 5.39 a sgnfcan level of 5% and % respecvely. As he paral F-sasc for all seleced counres are greaer han 5.39, we rejec null hypohess a % sgnfcan level. Thus, based on Chow es, he presence srucural change on he relaonshp beween Malaysa s oal GDP and nward FDI from seleced counres was deeced afer akng no accoun he nernaonal relaons beween Malaysa and he counres o be nvesgaed (Japan, US, Sngapore and Germany. 5. Summary Guanx, from a mcro perspecve could mprove busnesses; hus when mplemened o a macro vew, nernaonal relaons also could posvely affecs Malaysa s GDP and FDI. Emprcal sudes had hrea nernaonal relaons as endogenous varable, whch could no sgnfcanly proof ha nernaonal relaons conrbue owards FDI and GDP. As expeced, Japan and Germany have posve mpac of nernaonal relaons for boh models. Ths s because he mplemenaon of Look Eas Polcy n 98 had encouraged more Japanese companes o nves n Malaysa. In addon, s also expeced o accelerae Malaysa s developmen projecs hrough ncreased foregn nvesmen, echnology ransfer, n house ranng, nroducon o Easern values, as well as he human resources developmen. Whle as for Germany, Germany and Malaysa have enjoyed close and longsandng economc es and srong busness parnershp durng he era of Mahahr, whch s connued unl now. Besdes ha, Germany s he larges nvesor n Malaysa. Invesmens by German companes nclude a new wafer facory (Infneon, new plan for manufacurng PBT, a plasc used prmarly n he elecrcal and elecroncs secor and he auomove ndusry, as well as facles for manufacurng meal goods and chemcal producs (Auswarges Am, ISSN 9-7 E-ISSN 9-5

12 Asan Socal Scence Vol. 6, No. 7; July As for Uned Saes, negave mpac of nernaonal relaons for boh models s no surprsng. Ths s because he conroversal sacked of hen Depuy Prme Mnser, Anwar Ibrahm n 998 had creaed a bg ssues no only n Malaysa self, bu also foregn counres, parcularly he Uned Saes. Mahahr descrbed Uned Saes vce presden, Al Gore s rebuke commen on hs case as dsrespecful and offensve for nerferng n Malaysan affars (Ahmad, 8 whle blased George Soros as archeypal rogue currency rader for hs alleged nvolvemen n rggerng he Asan Crss 997/98 (Mahahr Mohamad : 55. Whle as for Sngapore, durng he era of Mahahr, despe beng he closes neghbor of Sngapore, he relaonshp beween boh counres had been sormy due o ssues such as dsagreemen on raw waer prces and saus of Pulau Bau Puh. Thus, we expeced he poor nernaonal relaons beween boh counres would worsen he relaonshp beween Malaysa s oal GDP and nward FDI, as well as relaonshp beween Malaysa s oal FDI and nward FDI. However, our resuls show a posve mpac of nernaonal relaons on boh models. In whch we suspec hs s due o effors and ncenves by Malaysa s governmen o arac nward FDI. For examples, Esablshmen of Free Trade Zone (FTZ facles for expor orened ndusres, Promoon of Invesmens Ac 986, and ncenves whch allowed a ax relef up o years, exempon from Malaysan ncome ax for 5 years and renewable o years. Perhaps due o geography close proxmy, Sngapore remans an mporan source of nvesmen for Malaysa. Fnally, resuls show ha here s srucural change n each counry. Ths ndcaes ha nernaonal relaons play an mporan role n aracng nward FDI o our counres. References Ahmad, A. (8. Dr Mahahr s Seleced Leers o World Leaders. Malaysa: Marshall Cavendsh Sdn. Bhd. Arf, M. (7. Economc Openness, Volaly & Reslence: Malaysan Perspecves. Malaysa: Malaysan Insue of Economc Research. Auswarges Am. (9. Blaeral Relaons: Malaysa. [Onlne] Avalable: hp:// (June, 9. Balasubramanyam, V. N., Salsu, M., and Sapsford, D. (996. Foregn drec nvesmen and growh n EP and IS counres. Economc Journal, 6, 9 5. Bengoa, M. and Sanchez-Robles, B. (3. Foregn drec nvesmen, economc freedom and growh: new evdence from Lan Amerca. European Journal of Polcal Economy, 9, Borenszen, E., De Gregoro, J., and Lee, J. W. (998. How does foregn drec nvesmen affec economc growh? Journal of Inernaonal Economcs, 45, Buckley, P.J., Clegg, J., & Tan, H. (6. Culural awareness n knowledge ransfer o Chna The role of guanx and manz. Journal of World Busness, 4(6, Carkovc, M. and Levne, R. (. Does foregn drec nvesmen accelerae economc growh? Unversy of Mnnesoa, Workng Paper. Chakrabory, C., & Basu, P. (. Foregn drec nvesmen and growh n Inda: a conegraon approach. Appled Economcs, 34, Chakrabory, C., & Nunnenkamp, P. (8. Economc reforms, FDI, and economc growh n Inda: A secor level analyss. World Developmen, 36(7, 9. Choe, J.I. (3. Do foregn drec nvesmen and gross domesc nvesmen promoe economc growh? Revew of Developmen Economcs, 7, Chow, G.C. (997. Challenges of Chna s economc sysem for economc heory. The Amercan Economc Revew, 87(, Chowdhury, A., & Mavroas, G. (6. FDI and growh: Wha causes wha? World Economy, 9(, 9-9. EconomyWach (b. (n.d.. FDI: Deermnans of Foregn Drec Invesmen. [Onlne] Avalable: hp:// (July 3, 9. EconomyWach. (n.d. (a. FDI: Benefs of Foregn Drec Invesmen. [Onlne] Avalable: hp:// (July 3, 9. Enders, W. (4. Appled Economerc Tme Seres, ( nd ed.. Hoboken: John Wlley & Sons, Inc. Frmpong, J.M., & Oeng-Abaye, E.F. (8. Bvarae causaly analyss beween FDI nflows and economc n Ghana. Inernaonal Research Journal of Fnance and Economcs, 5. Furuoka, F., Lo, M.C., & Kao, I. (8. Japan's Foregn Ad Polcy Towards Malaysa. Case Sudes of he New Myazawa Inave and he Kelau Dam Consrucon. [Onlne] Avalable: hp:// (Augus 6, 8. Publshed by Canadan Cener of Scence and Educaon 67

13 Asan Socal Scence Vol. 6, No. 7; July Gao, T. (4. Foregn drec nvesmen and growh under economc negraon. Journal of Inernaonal Economcs, 67(5, Goldberg, M.A., Henkel, R.L., & Lev, M.D. (5. Foregn drec nvesmen: The human dmenson. Journal of Inernaonal Money and Fnance, 4(5, Graham, J.P., & Spauldng, R.B. (4. Gong Global: Undersandng Foregn Drec Invesmen (FDI. [Onlne] Avalable: hp:// (July 3, 9. Hansen, H., & Rand, J. (6. On he causal lnks beween FDI and growh n developng counres. World Economy, 9(, -4. Har W. M., Lam Z. L. & Lew K. Y. (9. Malaysa-Wes Asa relaons and foregn drec nvesmen: Proposal for an Ummah Nework based on socal capal concep. Journal of Inernaonal Socal Research. Vol., (6: Hsao, F.S.T., & Hsao, M.C.W. (6. FDI, expors, and GDP n Eas and Souheas Asa: Panel daa versus me-seres causaly analyses. Journal of Asan Economes, 7, 8 6. L, X., & Lu, X. (4. Foregn drec nvesmen and economc growh: An ncreasngly endogenous relaonshp. World Developmen, 33(3, Lm, G.E. (6. Tun Mahahr s rgh ha he counry s economy s bad when for he frs me n hsory. [Onlne] Avalable: hp://dapmalaysa.org/englsh/6/oc6/lge/lge49.hm (Augus 6, 8. Love, S., Smmons, L.C., & Kal, R. (999. Guanx versus he marke: Ehncs and effcency. Journal of Inernaonal Busness Sudes, 3(, Mahahr Mohamad. (. The Malaysan Currency Crss: How and why Happened. Kuala Lumpur: Pelanduk. Malaysa Daly News. (9. Asean Affars: Malaysa FDI plunges n Jan-May 9. [Onlne] Avalable: hp:// 9 (Augus, 9. Marwah, K., & Tavakol, A. (4. The effec of foregn capal and mpors on economc growh: Furher evdence from four Asan counres ( Journal of Asan Economcs, 5(4, Narayan, P. K. (5. The Savng and Invesmen nexus for Chna: Evdence from conegraon es. Journal of Appled Economercs, 37(5, Neuhaus, M. (6. The Impac of FDI on Economc Growh: An analyss for he ranson counres of Cenral and Easern Europe. Germany: Physca Verlag. Olofsdoer, K. (998. Foregn drec nves, counry capables and economc growh. Revew of World Economcs, 34(3, Park, S.H., & Luo, Y. (. Guanx and organzaonal dynamcs: Organzaonal neworkng n Chnese frms. Sraegc Managemen Journal,, Xn, K.R., & Pearce, J.L. (996. Guanx: Connecons as subsues for formal nsuonal suppor. Academy of Managemen Journal, 39(6, Yeung, H.W.C. (997. Busness neworks and ransnaonal corporaons: A sudy of Hong Kong frms n he Asean Regon. Economc Geography, 73(, -5. Zhang, K.H. (. Does foregn drec nvesmen promoe economc growh? Evdence from Eas Asa and Lan Amerca. Conemporary Economc Polcy, 9(, Table. Resul of Perron es on Malaysa s GDP a µ µ a a Japan Level ( (.68 (-.496 (3.9*** (-.93** US 68 ISSN 9-7 E-ISSN 9-5

14 Asan Socal Scence Vol. 6, No. 7; July Level (.859 (-.77 (-.65 (.8587** (-.755 Frs dfference (.9878 (-.899 (-.968 (.7495 (-.849 Sngapore Level ( (-.83 (-.788 (-.847 (3.6699*** Frs dfference E (.683 (-.83 (.99 (.9 ( Germany Level ( (-.83 (-.788 (3.6699*** (-.847 Frs dfference E (.683 (-.83 (.99 (.9 ( Noes: ***, **, * ndcaes he rejecon of he null hypohess a %, 5%, and % sgnfcance levels. The approprae -sascs are n parenheses. Table. Resul of Perron es on Malaysa oal FDI Japan Level Uned Saes Level Sngapore Level a µ µ a a ( ( ( ( (-.577**.48 ( ( ( ( ( ( ( (.3637*.7355 (.98**.4765 (.5449* Germany Level ( ( ( ( (.5449* Noes: ***, **, * ndcaes he rejecon of he null hypohess a %, 5%, and % sgnfcance levels. The approprae -sascs are n parenheses. Table 3. Resul of Engle-Granger Tes for Model and Model Tes Sasc for Model Tes Sasc for Model Counres Japan -.487*** -.499** Uned Saes -.85*** *** Sngapore -.89* -4.8*** Germany *** *** Noes: ***, **, * ndcaes he rejecon of he null hypohess a %, 5%, and % sgnfcance levels. Publshed by Canadan Cener of Scence and Educaon 69

15 Asan Socal Scence Vol. 6, No. 7; July Table 4. Resul of ECM for Model and Model Counres ECM for Model ECM for Model Japan -.439** -.5 Uned Saes -.775** -.98 Sngapore -.84** -.546*** Germany ** Noes: ***, **, * ndcaes he rejecon of he null hypohess a %, 5%, and % sgnfcance levels Table 5. The regresson resul of Model Japan Uned Saes Sngapore Germany C.6436* 6.986***.559***.5744*** (9.98 (.59 (.664 (.6984 D -4.4*** ** -.67* (-.855 (5.664 (.7 (.86 X.987 ( *** ( * (.4.46*** (5.84 D X.66** ***.546*** (.75 (.58 (.36 (3.37 Adjused R Noe: ***, **, * denoes sgnfcan level a percen, 5 percen, and percen respecvely. The sandard errors are n parenheses. Table 6. The regresson resul for Model Japan Uned Saes Sngapore Germany C 8.39* 6.864*** 3.737*** 5.65*** (5.63 (.499 (.78 (.86 D * *** -.783* ( ( (.89 (.43 X.646* ( *** ( *** ( *** (.73 D X.3* -..54***.53*** ( (.339 (.9 (.779 Adjused R Noe: ***, **, * denoes sgnfcan level a percen, 5 percen, and percen respecvely. The sandard errors are n parenheses. Table 7. Resul of Chow Tes for Model RSS R RSS RSS RSS UR Paral F-sasc Japan *** Uned Saes *** Sngapore *** Germany *** Noe: ***, **, * denoes sgnfcan level a percen, 5 percen, and percen respecvely. 7 ISSN 9-7 E-ISSN 9-5