Malaysia's outward FDI: The effects of market size and government policy

This paper extends the empirical literature of Malaysia's outward FDI (OFDI) by considering the impact of foreign market size and home international reserves using multivariate cointegration and error-correction modeling techniques. The empirical results reveal that there is a positive long-run relationship between Malaysia's OFDI and its key determinants, viz. foreign market size, real effective exchange rate, international reserves and trade openness. The main findings suggest that apart from the market-seeking incentive and the adoption of outward-oriented policies, the Malaysian government could also encourage OFDI by implementing liberal policy on capital outflows. On the basis of these findings, we draw some policy implications for the country's economic development and the internationalization of Malaysian firms in the era of globalization.