Foreign Direct Investment, Human Capital and Economic Growth in Malaysia

The international markets have been the major influence spurring economic growth and development in the Malaysian economy even until today. There were two sources of growth, namely foreign capital and exports of commodities. The government particularly beginning in 1971 moved to develop human capital stock by investing a large amount of public capital in the education sector. However, the growth of human capital did not become a significant catalyst for economic growth. Public and private expenditures for research and development (R&D) remained low compared to neighboring countries such as South Korea and Singapore. This paper examines the effects of Foreign Direct Investment (FDI) and Human Capital (HC) development on economic growth in Malaysia. This paper will also discuss the contribution of these two factors to Malaysia’s economic growth for the period of 1980 - 2010 from three angles: Gross Domestic Products (GDP) growth, GDP per capita growth and technological change.