Foreign Direct Investment and Malaysia’s Stock Market: Using ARDL Bounds Testing Approach
Foreign Direct Investment and Malaysia’s Stock Market: Using ARDL Bounds Testing Approach

Summary/Abstract: The broad aim of the present study is to examine the influence of Foreign Direct Investment (FDI) inflow and in addition, some other macroeconomic variables namely domestic investment, inflation rate, domestic saving and GDP on Malaysia’s stock market. This study is based on annual time series data covering the period ranging from 1988 to 2012. After checking the data for stationarity purpose, an Autoregressive Distributed Lag (ARDL) bounds testing approach has been employed for parameters estimation. The empirical results of ARDL bounds testing approach suggest that FDI inflow has a positive influence on the stock market. It is also found that domestic investment, domestic saving rate, GDP growth rate and inflation variables influence stock market. The estimated coefficient of FDI is found to be positive, which implies that the policy makers need to devise a friendly and conducive investment policy in order to enhance FDI inflow and encourage domestic investment. In addition, inflation rate needs to be controlled and the domestic savings should be encouraged in order to promote stock market. This study offers prodigious insights on the important implication of the FDI in stock market. The positive influence of FDI on stock market demonstrates the complementary role of inflows of FDI in the stock market. This study will certainly contribute to the growth of literature on the impact of FDI inflows on stock market capitalization.

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