Singapore foreign direct investment in Malaysia : the effect of wages and exchange rate

Foreign Direct Investment (FDI) has contributed significantly to Malaysia's economic growth and Singapore has played a key role in the rise of FDI flows . This study examines the determinants of FDI and discusses the policies and incentives that have been implemented to attract more inflow of foreign capital. An attempt is made to trace the recent FDI trends in Malaysia, with particular attention paid to Singapore FDI and its pattern of flows in the various industrial sectors. An econometric analysis of the effects of relative exchange rate and unit labour costs on FDI flows is also conducted using data published by the Malaysian Industrial Development Authority. Results from the study suggested that real exchange rate has significantly affected Singpaore FDI into Malaysia, that is, the appreciation of the Singapore Dollar relative to Malaysia Ringgit has a positive impact on Singapore FDI into Malaysia. However, the results suggested that the effect of relative unit labour costs is insignificant. Even with higher unit labour costs in Malaysia relative to that of Singapore in the current period, there was a decrease in Singapore FDI flowsACCOUNTANC