FDI and uncertainty: the Malaysian case

Foreign direct investment (FDI)has fueled the engine of growth of the Malaysian economy since the early 1970s. Most literature in the area of FDI uses Dunning’s eclectic paradigm to explain the who, where, and how of FDI. However, these explanations are inadequate to explain the timing (or when) of FDI, especially during periods of uncertainty. Recent work on FDI introduces two further factors to explain the behavior of foreign investors during times of uncertainty, namely, reversibility and delayability. This paper utilizes these two additional factors to explain the behavior of potential foreign investors. Employing data obtained from the Malaysian Investment Development Authority (MIDA), the paper analyzes the changing nature of sectoral FDI and links this to the reversibility and delayability factors.