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Foreign Portfolio Investment and Economic Growth in Malaysia

Author

Listed:
  • Jarita Duasa

    (International Islamic University Malaysia, Kuala Lumpur, Malaysia.)

  • Salina H. Kassim

    (International Islamic University Malaysia, Kuala Lumpur, Malaysia.)

Abstract

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.

Suggested Citation

  • Jarita Duasa & Salina H. Kassim, 2009. "Foreign Portfolio Investment and Economic Growth in Malaysia," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 48(2), pages 109-123.
    • Handle: RePEc:pid:journl:v:48:y:2009:i:2:p:109-123
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    File URL: http://www.pide.org.pk/pdf/PDR/2009/Volume2/109-123.pdf
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    Citations

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    Cited by:

    1. Raza, Syed Ali & Sabir, Muhammad Sarwar & Mehboob, Farhan, 2011. "Capital inflows and economic growth in Pakistan," MPRA Paper 36790, University Library of Munich, Germany.
    2. Muhammad Mohsin Hakeem & Ken-ichi Suzuki, 2017. "Foreign Portfolio Investment and Economy: The Network Perspective," Papers 1712.10274, arXiv.org.
    3. Pravakar Sahoo & Ranjan Kumar Dash & Yoon Jung Choi, 2021. "Do Absorptive Capacities matter for FPI-Growth Nexus? Evidence from Cross-country Analysis," IEG Working Papers 435, Institute of Economic Growth.
    4. Kapingura Forget Mingiri & S.I Ikhide & A Tsegaye, 2016. "The Relationship between External Financial Flows and Economic Growth in the Southern African Development Community (SADC): The Role of Institutions," Journal of Economics and Behavioral Studies, AMH International, vol. 8(1), pages 87-103.
    5. Acha, Ikechukwu A & Essien, Joseph M, 2018. "The Economic Growth Imperative of Foreign Portfolio Investment for Nigeria," Noble International Journal of Economics and Financial Research, Noble Academic Publsiher, vol. 3(6), pages 71-77, June.
    6. Kunofiwa Tsaurai, 2017. "Is foreign Portfolio Equity Investment Inspired Growth Hypothesis Relevant in Emerging Markets?," EuroEconomica, Danubius University of Galati, issue 2(36), pages 78-90, November.
    7. Mehmet Mucuk & Mustafa Tahir Demirsel & ?brahim Erem ?ahin, 2014. "The Relationship Between Foreign Portfolio Investments And Economic Growth: The Case Of Turkey," Proceedings of International Academic Conferences 0702082, International Institute of Social and Economic Sciences.

    More about this item

    Keywords

    Foreign Portfolio Investment; Economic Growth; Granger Causality; Toda-Yamamoto Non-causality; Variance Decomposition;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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