Fundamentals and country specific determinants of FDI: Evidence from United States and Malaysia

This paper analyses the impact of macroeconomic fundamentals and country specific determinants on Foreign Direct Investment (FDI) in the United States of America (USA) and Malaysia from 1981 to 2013. Increased world integration, liberalisation and deregulation have reduced trade barriers in all countries across the world, allowing for vast growth in international trade and investment. In addition, negotiations on regional free trade agreements and the adaptation of favourable policies towards expansion of foreign investment in emerging countries have resulted in tremendous interest on the part of policy makers to compete for FDI that brings prosperity to these host countries. Empirical results conclude that while the rate of economic growth and domestic credit draw more FDI into the USA, changes in total trade and domestic interest rates have a significant effect on FDI flows into Malaysia.