Issues and Challenges in the Malaysian Economy by Mohd Fahmee Ab Hamid

Author:Mohd Fahmee Ab Hamid
Language: eng
Format: epub
ISBN: 9781838674816
Publisher: Emerald Publishing Limited
Published: 2019-09-24T16:00:00+00:00

4

Foreign Direct Investment, Financial Development, Exchange Rate Volatility: An Analysis of the Malaysian Inequitable Development

Elya Nabila Abdul Bahri

4.1 Introduction

There is a heated debate among researchers, policy makers and academicians about the effects of foreign direct investment (FDI) on economic growth. Proponents argue that FDI is good for economic development and therefore perceive the rapid expansion of FDI in emerging countries as positive, and Malaysia is not an exception, during the last three decades. The benefits of FDI on economic development is however has been criticised, which may lead to an increment of poverty, isolation and a neglect of local capabilities to compete. The inflows of foreign direct investment are an essential for Malaysia on gaining more capital accumulation in order to accelerating the economic growth. As a multinational company, the survival of their day-to-day business needs a financial support from domestic banks. Thus, the better performance of foreign direct investment on economic development is contingent with the level of financial development (Alfaro, Chanda, Kalemli-Ozcan, & Sayek, 2010). This relationship can be disrupted with the uncertainty of the economy, such as exchange rate volatility (Bahri, 2018). Subsequently, these problems create a big gap of income distribution and inequitable development.

Globalisation has been linked to inequality within and between societies due to the differences of income level for the countries of the whole world. On the whole, trade liberalisation and international economic reforms have not brought the benefits to the poor that were predicted before countries embarked on international reforms in the 1980s. The previous studies are however found that foreign direct investment as well as financial development influencing the size of inequitable development. These facts are contrary with the egalitarian, where the income of people in one particular country should be equal. Inequality gap leads the richer people become richer and the poorer people will be worse off. As quoted in Pareto efficiency, one cannot be better off without letting other people worse off. The pattern of distribution income may reflect on society's general equilibrium.

This chapter intends to position FDI and financial development in the income inequality in Malaysia. The relationship might be crucial in economic uncertainty led by the exchange rate volatility. The structure of the chapter is as follows: a review of income inequality and economic growth in Malaysia (Section 4.2), FDI and inequitable development (Section 4.3) and financial development on inequitable development (Section 4.4). Subsequently, a review of exchange rate volatility and inequitable development (Section 4.5). The empirical results for the effect of FDI, financial development and exchange rate volatility on inequitable development in Malaysia will be discussed in Section 4.6, and finally, Section 4.7 concludes the chapter.

4.2 Income Inequality and Economic Growth in Malaysia

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.