Malaysian Foreign Direct Investment and Growth: Does Stability Matter ?

Abstract

This study examines the nexus of exports, domestic demand and economic growth in the Middle East countries, namely Bahrain, Iran, Oman, Qatar, Saudi Arabia, Syria and Jordan. The results of the Granger causality test and Geweke (1982) decomposition of causality show that exports, consumption and investment are important to economic growth and also economic growth is important to exports, consumption and investment. Nonetheless, the findings vary across countries in the region. There is a tendency that exports have a stronger impact on economic growth when a country has a higher ratio of openness to international trade. Nonetheless, there is no strong evidence that consumption or investment has a stronger impact on economic growth when a country has a higher ratio of consumption to gross domestic product (GDP) or investment to GDP. Consumption is found to be more important than investment in contributing to economic growth. A sustained economic growth requires growth in both exports and domestic demand. Moreover, economic growth will increase exports and domestic demand.