The Impact of Foreign Direct Investment on Unemployment Rate in Malaysia (1995–2025)

Abstract

This study aims to investigate the link of Foreign Direct Investment
(FDI) to the unemployment rate in Malaysia. In particular, the study
aims to determine whether the inflow of FDI has a significant
relationship with a reduction in unemployment over time. The
research problem addressed in this study stems from the fact that
Malaysia has consistently increased its FDI, yet the unemployment
rate remains volatile. This situation raises the question of how far
FDI actually is creating jobs and provide economic stability. This
study uses a quantitative research methodology using secondary
data from Bank Negara Malaysia (BNM), World Bank, and
Department of Statistics Malaysia (DOSM) covering 30 years of data.
The secondary data were analyzed using EViews to conduct several
statistical procedures including descriptive analysis, unit root test,
simple regression analysis and hypothesis testing. The study
highlights the relationship between FDI and unemployment rate and
whether FDI has a significant impact to employment in Malaysia.
The findings offer valuable perspective on how foreign investment is
contributing to the performance of the labor market and the growth
of the economy at the national level. This study contributes in
understanding the effect of foreign direct investment (FDI) in
regulating unemployment so that adequate and sustainable
investment and employment policies can be created by
policymakers. The Malaysian government should continue to
encourage quality foreign investment to create sustainable
employment and support long-term economic growth.