THE DYNAMIC INTERACTIONS AMONG FOREIGN DIRECT INVESTMENT, UNEMPLOYMENT, ECONOMIC GROWTH AND EXPORTS: EVIDENCE FROM MALAYSIA

The dynamic relationships among foreign direct investment, unemployment, economic growth and exports are analysed using the vector autoregression (VAR) method of variance decomposition in Malaysia. The results of the analysis show that firstly, at least one unique cointegrating relationship exists for Malaysia; secondly, both models of unemployment and economic growth display a long-run causality from independent variables to dependent variables (namely unemployment and economic growth); thirdly, economic growth and exports are found to be the main determinants of unemployment in Malaysia; and finally, as the forecast horizon increases, the importance of historical shocks associated to economic growth and exports declines.