Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country. It is the establishment of an enterprise by a foreigner. More specifically, foreign direct investment is a cross-border corporate governance mechanism through which a company obtains productive assets in another country .Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor.
Foreign Direct Investment (FDI) in Malaysia is set up following the holding of at least 10% of the total equity in a resident company by a non-resident investor. Consequent transactions in financial assets and liabilities between resident companies and non-resident direct investors linked by a foreign direct investment relationship (FDIR) can also be known as FDI. The transactions could be between Malaysian companies and with its immediate or ultimate parent or fellow companies.
Malaysia has been one of the most successful Southeast Asian countries in attracting Foreign Direct Investment (FDI). It has always endeavored to maintain the competitiveness of FDI determinants like legal infrastructure. Many policy instruments have been set up. The Malaysian government has improved the value of the present determinants and is considering new strategies to attract FDI.
Since gaining independence in 1957, Malaysia has taken advantage of tangible assets like natural resources, abundant labour as well as intangible assets like trade status under Generalised System of Preferences (GSP), macroeconomic stability, liberal trade regime, and a resourceful legal infrastructure to bring in FDI. The Government of Malaysia’s (GOM) main policy is to bind FDI as a part of the economic development strategy to acquire foreign technology, capital, and skills.
Malaysia has been an encouraging economy to foreign investors. The reinvestment and the new capital injection among the present foreign companies specified their assurance in Malaysian investment. The FDI movement is derived from financial institutions and non transaction factors like foreign exchanges, price changes, and other changes during the reference period. Put in the other way, the movement is derived from the differences between the closing and opening positions of the year.
Investment income of FDI has three parts; reinvested earnings, dividends, and interests. Interests are income on loans and debt securities. Dividends are distributed earnings allocated to shares and other forms of participation in the equity of incorporated private enterprises, public corporations, and cooperatives.
FDI statistics are used by policy makers as a tool to devise foreign investment policy. A joint survey between Department of Statistics, Malaysia and Bank Negara Malaysia is performed to further improve the capability in giving detailed analysis.