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The Impact of Political Instability on Foreign Direct Investment in Malaysia

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  • Mohamad Aizad Mohamad Azahar

    (Faculty of Business and Management, Universiti Teknologi MARA, Kampus Sungai Petani, Merbok, Kedah, Malaysia City Zone Express Sdn Bhd, Bukit Mertajam, Pulau Pinang, Malaysia)

  • Hafizah Hammad Ahmad Khan

    (Faculty of Business and Management, Universiti Teknologi MARA, Kampus Sungai Petani, Merbok, Kedah, Malaysia)

Abstract

This study investigates the relationship between political instability and Foreign Direct Investment (FDI) in Malaysia from 2008 to 2023, considering the interplay with other critical macroeconomic factors such as GDP, interest rates, exchange rates, and trade openness. Using the Autoregressive Distributed Lag (ARDL) model, the findings underscore the significant deterrent effect of political instability on FDI, highlighting its role as a critical barrier to attracting foreign investments. Conversely, GDP emerges as a strong enhancer of FDI, indicating that economic vitality is crucial for attracting foreign capital. The study also reveals that while higher interest rates negatively impact FDI, exchange rates and trade openness do not show a significant long-term effect on FDI inflows. This study contributes to the existing literature by providing empirical evidence on the dynamics between political instability and economic factors affecting FDI in Malaysia. The results offer valuable insights for policymakers aiming to enhance Malaysia’s attractiveness as an investment destination.

Suggested Citation

  • Mohamad Aizad Mohamad Azahar & Hafizah Hammad Ahmad Khan, 2024. "The Impact of Political Instability on Foreign Direct Investment in Malaysia," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(9), pages 2848-2858, September.
    • Handle: RePEc:bcp:journl:v:8:y:2024:i:9:p:2848-2858
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    References listed on IDEAS

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