Re-examining the Determinants of Malaysia’s Outward FDI

While Malaysia is well known as an attractive destination for foreign direct investment (FDI), the country is also becoming a significant source of outward FDI (OFDI) as it has become a net exporter of capital since 2007. The increase in the outward investment may be due to the attractiveness of foreign host countries relative to Malaysia’s domestic constraints. Consequently, outward investment may be used as one of the strategies to overcome domestic constraints in Malaysia. This paper examines the push and pull factors influencing Malaysia’s investment abroad based on the country’s top 15 destination countries that accounted for approximately 65 percent of Malaysia’s OFDI from 2003 to 2011. The empirical determinants of OFDI, from the perspectives of pull and push factors, were tested using macroeconomic data in a gravity model. Since OFDI activities are still relatively new in Malaysia, this study is exploratory in nature. The value added of this paper is to fill the research gap by providing a more comprehensive understanding on the factors that drive OFDI from Malaysia compared to the relative attractiveness of Malaysia as a host economy. The findings in this paper indicate that Malaysia’s outward investments are significantly influenced by relative market size, tax rates, openness, distance and cultural proximity. In addition, the results indicate that OFDI from Malaysia is likely to be horizontal or market seeking.