IMPACT OF TRADE OPENNESS, FOREIGN DIRECT INVESTMENT AND EXCHANGE RATE ON MANUFACTURING EXPORT IN MALAYSIA

Abstract

Despite recent changes in the capitalist financial system and global production, export manufacturing is one part of exports that maintain a productive structure and is a key component of economic growth that can create employment and income prospects. The export manufacturing value in Malaysia grew by 22.3 percent to RM 1,306.7 billion in 2022, with electrical and electronic products contributing 30.2 percent. In order to identify and assess the impact of trade openness, foreign direct investment (FDI) and the exchange rate on Malaysia’s manufacturing exports, the present study uses empirical analytical methods. The study employed Autoregressive Distributed Lag (ARDL) regression analysis on annual time series data from year 1990 to 2021. The study's conclusions indicate that there is cointegration, or a long-term relationship, between Malaysia's manufacturing exports trade openness, FDI, and currency exchange rates. FDI positively and significantly affects the value of manufacturing exports. Trade openness is also significant and can contribute to higher economic growth and overall economic development. This study’s findings may be valuable to the government in improving Malaysia’s overall manufacturing export performance. However, governments must strike a balance between reaping trade gains and protecting domestic businesses from unfair competition or disruptions. Thus, Malaysia’s trade openness and FDI growth policies can be strengthened and intensified to achieve these objectives.