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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. Key OFDI Trends Key Factors Push Factors Pull Factors Strategic Reasons Conclusion.

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Outward Foreign Direct Investment: The Malaysian Experience

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  1. Outward Foreign Direct Investment: The Malaysian Experience Emeritus Prof. Dr. Mohamed Ariff and Greg Lopez Malaysian Institute of Economic Research

  2. Presentation Outline • Key OFDI Trends • Key Factors • Push Factors • Pull Factors • Strategic Reasons • Conclusion MIER

  3. OFDI as a % of South, East and SE. Asia Total FDI Stock Source: UNCTAD MIER

  4. OFDI as % of GDP Source: UNCTAD MIER

  5. OFDI Flows 1980 - 1992 US million Source: UNCTAD MIER

  6. OFDI Flows 1993 - 2005 US million Source: UNCTAD MIER

  7. OFDI - Top Ten Locations (1993 -2005) RM million MIER Source: BNM, various years

  8. Trends - Destination (1999 - 2005) MIER Source: BNM 2006

  9. Trends - Sectors MIER Source: BNM 2006

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

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

  12. 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. MIER

  13. Push Factors - Tight Labour Market Unemployment MIER Source: Nambiar 2007

  14. 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) MIER

  15. Cyclical Push Factor • Recession of 1985 and Financial Crisis of 1998 • Market saturation in certain sectors MIER

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

  17. 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 MIER

  18. 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 MIER

  19. 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 MIER

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

  21. 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. MIER

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