Malaysian Economic Review

Determinant Factors and Foreign Direct Investment in Malaysia: Cointegration and Causality Analysis

Chin Shing Yee — 2025-06-23

This research attempts to examine the determinants of FDI in Malaysia. The infrastructure,
market size, exchange rate and inflation rate are considered independent factors that impact the
FDI in this research. Yearly data from 1991 to 2020 was sourced from World Bank. The ARDL
model was used to test the cointegration and causal relationship between the determinants and
FDI. Based on the results, the infrastructure has positively influenced the FDI in the long and
short-run. The impact of market size, exchange rate and inflation rate on FDI is statistically
insignificant in the long-run. However, the market size and exchange rate have a significant
short run relationship with FDI but none between the inflation rate and FDI. This research
provides decision-making insights for investors, policymakers and practitioners. It plays a vital
role in formulating FDI related policy in Malaysia. Despite facing limitations, this research
concluded with some recommendations for future research.

Determinants of Unemployment in Sabah: Long-Run and Short-Run Analysis

Marcilla Elmy Girl Malasius — 2025-06-20

This study explores the determinants of unemployment in Sabah from 1982 to 2020. This study
utilised the Autoregressive Distributed Lag order (ARDL) model to investigate the linear
relationship between job vacancies, economic growth, government spending, labour force
participation, and inflation on unemployment. Job vacancies were disaggregated into five types
based on occupations to better understand the symmetric relationship between unemployment
and vacancies based on the Beveridge curve theory. Alongside Beveridge Curve theory, this
study included Okun’s Law, Keynesian theory of fiscal policy, and Phillips curve theory, which
explain the factors of unemployment. Findings revealed that unemployment was influenced by
economic growth (GDP) and inflation (CPI) in Sabah.

Fluctuations of Crude Oil and the Impact on Malaysian Oil Producers

Izaan Jamil — 2025-06-20

This study aims to investigate the impact of price fluctuations of crude oil on oil producers’ companies in Malaysia. Individual stock prices of oil producers were selected instead of stock market indexes. This study employed an Autoregressive Distributed Lag Bounds (ARDL) model with weekly data spanning from January 2011 until June 2022. The empirical results found evidence of cointegration between crude oil and the stock price of PETRONAS Chemical, PETRONAS Gas, Hibiscus Petroleum and Petron Malaysia. This indicates that the stock prices move in tandem with crude oil towards long-run equilibrium. Furthermore, the study finds substantial statistical evidence of a causal impact from crude oil to the stock prices of oil producer companies, suggesting that Brent Futures significantly influences the stock price behaviour of Malaysian oil producers. The empirical results of this study will be able to assist the fund managers of these oil producer companies or individual investors in designing investment strategies based on the price movement of crude oil.

Relationship Between Stock Market and Macroeconomic Variables Using Panel Data with Structural Breaks: ASEAN-5 Countries

Diana Hassan — 2025-06-20

This study looks at the ASEAN-5 countries and investigates how structural changes affect the
relationship between the stock market index and selected macroeconomic variables (interest
rate, exchange rate, and industrial production index) using panel data analysis from January
2012 to December 2022. Applying the panel date regression techniques, the results show that
before the structural break period, the random effect model (REM) is appropriate for the
estimate model. The stock market index is significantly affected by the interest rate and
industrial production index, but the exchange rate is found to be insignificant. After structural
break, a fixed effect model (FEM) is appropriate where all significant and only the exchange
rate is found to be negative. The findings of this paper also conclude that the industrial
production index has a greater effect on both the model before and after a break and is positively
related to the stock market index. In this case, there is a need for amendments in monetary
policy to ensure that the industrial production index is set at a high level, since the results would
be able to boost the stock market in the selected ASEAN-5 countries.

The Impact of Gross Domestic Product, Trade Openness, Air Transportation, and Total Final Energy on Carbon Dioxide Emission in Malaysia

Adwina Chin Lee Ling — 2025-06-20

The current paper provides an empirical analysis of the relationship between carbon dioxide
(CO2) emissions and economic factors, namely Gross Domestic Product (GDP), air
transportation, energy consumption, and trade openness in Malaysia, based on the annual data
from 1990 until 2016. By utilising the cointegration analysis, it is demonstrated that CO2
emissions exhibit a positive and significant long-run relationship with air transportation and
energy consumption. Meanwhile, GDP and trade openness are significant in influencing CO2
emissions in the short run. It was also demonstrated that the disturbances fluctuate while
entering the long-run relationship in a dampening manner rather than monotonically. It is
advised for policymakers to continually consider the movements of these economic
determinants due to their significant effect on CO2 emissions in Malaysia in both the short and
long run.

The impact of macroeconomic variables on crude palm oil price in Malaysia

Mohamad Isa Abd Jalil — 2025-06-20

Crude Palm Oil (CPO) has been a cornerstone of Malaysia's economy for decades, serving as
one of the nation's most valuable export commodities. The persistent volatility of CPO prices
reflects the inherent uncertainty of commodity markets, necessitating informed decisionmaking
and robust risk management strategies. This dynamic environment requires continued
research to unravel the complex relationships between crude palm oil prices and key economic
variables, ensuring Malaysia’s palm oil industry remains competitive and resilient in a rapidly
changing global market. Thus, this study aims to examine the impact of macroeconomic
variables on crude palm oil price in Malaysia. The study employs structural vector
autoregressive (SVAR) model, spanning the period from 1971 to 2023. The findings suggest
that real GDP positively influences CPO prices, though the response was statistically
insignificant. Government expenditure showed a delayed positive impact on CPO prices. The
CPI's negative and significant relationship with CPO prices underscores the cost-push effects
of inflation. Similarly, the delayed negative impact of interest rates on CPO prices emphasizes
the need for careful monetary policy adjustments to support agricultural investment and
production.