Foreign Direct Investment, Exports, Education, and Growth in Malaysia

Although it has been recognized that exports, foreign direct investment (FDI), and education are important ingredients in economic development, not much research has been carried out to determine the relationship among them in developing countries. This paper examines the relationship among exports, FDI, education spending and Malaysia's economic growth using the cointegration technique, VECM, and the causality tests. The results suggest that real GDP per capita, exports, FDI and education spending are cointegrated. The estimated long-run relationship shows that exports, FDI and education expenditure could explain the variation in real GDP per capita. The Granger causality tests indicate that the exports, FDI and education expenditure cause economic growth with no feedback. These imply that the Malaysian export-oriented, liberal FDI and education development strategies have played important role in the development of Malaysian economy.