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Outward Foreign Direct Investment: The Malaysian Experience. Emeritus Prof. Dr. Mohamed Ariff and Greg Lopez Malaysian Institute of Economic Research. Presentation Outline. Key OFDI Trends Key Factors Push Factors Pull Factors Strategic Reasons Conclusion .

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outward foreign direct investment the malaysian experience

Outward Foreign Direct Investment: The Malaysian Experience

Emeritus Prof. Dr. Mohamed Ariff

and Greg Lopez

Malaysian Institute of Economic Research

presentation outline
Presentation Outline
  • Key OFDI Trends
  • Key Factors
    • Push Factors
    • Pull Factors
    • Strategic Reasons
  • Conclusion

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ofdi as of gdp
OFDI as % of GDP

Source: UNCTAD

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ofdi flows 1980 1992
OFDI Flows 1980 - 1992

US million

Source: UNCTAD

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ofdi flows 1993 2005
OFDI Flows 1993 - 2005

US million

Source: UNCTAD

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ofdi top ten locations 1993 2005
OFDI - Top Ten Locations (1993 -2005)

RM million

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Source: BNM, various years

trends sectors
Trends - Sectors

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Source: BNM 2006

trends investment type
Trends - Investment Type
  • Malaysian controlled companies (GLCs & RCCs) - 61% of OFDI (1999 - 2005)
  • Mainly through equity & joint ventures
  • Funded internally (62%)

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trends investment type1
Trends - Investment Type
  • OFDI by NRCCs - 39% (1999 - 2005)
  • NRCCs investment were essentially extension of inter - company loans to related companies abroad (91%)

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structural push factors
Structural Push Factors
  • Economic growth - RGDP grew at 6.5% on average from 1957 - 2005
  • GDP per capita (at current prices) grew on average at 7.0% (1957 - 2005)
  • Gross domestic savings increased from 29% of GDP in 1981 to 43% in 2005.

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push factors tight labour market
Push Factors - Tight Labour Market

Unemployment

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Source: Nambiar 2007

push factors private sector development
Push Factors - Private Sector Development
  • No. of listed companies on the MSE grew at an average of 5.6% per annum (1981 - 2001).
  • KLCI grew at an average of 3.1% per annum (1981 - 2001)
  • Prior to crisis, MSE was the 4th largest in Asia (market capitalisation)

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cyclical push factor
Cyclical Push Factor
  • Recession of 1985 and Financial Crisis of 1998
  • Market saturation in certain sectors

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institutional push factors
Institutional Push Factors
  • Government policies
    • Economic Nationalism and affirmative action (1970 - 1980s)
    • Tax exemption, tax incentives & special funds (1991 - present)

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key determinants
Key Determinants
  • Rising cost of labour especially in relation to the cost of labour in the region
  • Wealth accumulation (individuals & companies)
  • Raise capital cheaply in the MSE

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structural pull factors
Structural Pull Factors
  • Low cost of factor (labour, raw material) prices in the region (labour intensive companies - manufacturing & textiles);
  • Markets;
  • Resource seeking (PETRONAS, plantation companies

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institutional pull factors
Institutional Pull Factors
  • Investment and Trade Agreements
    • Investment Guarantee Agreements;
    • ASEAN Free Trade Agreement;
    • The WTO Agreement;
  • Institutions
    • MIDA, MATRADE and EXIM Bank
    • MASSA & MASSCORP

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strategic pull reasons
Strategic Pull Reasons
  • South - south co-operation
    • Diversifying markets (moving away from the U.S., E.U. and Japan)
  • Access to resources (oil & gas)

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findings
Findings
  • No conclusion can be made as the nature of the study is limited
  • Two trends can be identified
    • State led
    • NRCCs (inter - company loans)
  • State involvement in OFDI significant
    • GLCs are significant players
    • Other push and pull factors similar to general reasons for OFDI
  • More in depth research using firm level data is needed.

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