Foreign Direct Investments and Development: The Malaysian Electronics Sector

Abstract

This paper presents recent data on foreign direct investment (FDI) in Malaysia, focusing on the electronics industry. It is found that FDI accounts for about 80 percent of total investment in the electronics sector during the 1990s, and the sector accounts for about half of Malaysia’s manufactured exports. Technology transfers from the foreign multinationals are studied, and it is found that over time the foreign companies have upgraded the technology, local supplier networks have been established, Malaysians have filled increasingly senior positions in the foreign companies, and expenditure on R&D in Malaysian foreign companies has increased substantially. While low-cost, reasonably skilled labor together with a business-friendly government policy were the main determinants for attracting foreign investment during the 1970s and 1980s, technological capacity is more important during the 1990s, while lower value added activities have been relocated to lower-cost countries in the region. Finally, US multinationals appear to have a more significant impact on the development of local technological capacity than the Japanese multinationals.