EFFECTS OF LABOR MARKET AND FDI ON ECONOMIC GROWTH IN MALAYSIA

Abstract

This paper examines the effects of labor market and FDI on economic growth in Malaysia. Economic growth and productivity improvement are among the most important issues in the field of economics. In the past decades, economists have attempted to find out the reason why some countries are able to grow faster than the others. Studies by Durlauf, Johnson and Temple (2005) and Sala-i-Martin (1997) identified more than sixty different variables that contribute to the growth performance. One of them is FDI, which is believed to bring positive externalities to the host country. FDI by MNCs has always been linked to new and superior technologies, extensive R&D activity, new managerial techniques, increased capital, job creation and improvement of working conditions, improvement in the quality of human capital, development of industrial sector, broadening of the tax base and better integration into the world markets (Caves 1974; Perez 1997; Haddad and Harrison 1993; Markusen and Venables 1999; Babic and Strucka 2001). This paper is examined relationship between labor market and FDI on economic growth in Malaysia. By using bound testing approach to cointegration and error correction model, developed within an autoregressive distributed lag (ARDL) framework developed by Pesaran et al. (1999) and data cover from period 1970-2017, we investigate whether a long-run equilibrium relationship exists between labor market and FDI on economic growth. The expected result for long run relationship between labor market and FDI in contribute the economic growth in Malaysia.