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Shadow Economy and Foreign Direct Investment Inflows: Evidence from Malaysia

Tengku Rafidatul Akma Tengku Razali et al.

Malaysian Journal of Economic Studies2025https://doi.org/10.22452/mjes.vol62no2.7article
ABDC C
Weight
0.50

What the paper says

Abstract Despite Malaysia’s reputation as one of the most attractive destinations for foreign direct investment (FDI) in Asia, the nation has experienced a downward trend in FDI flows since reaching a peak in 2011. This sustained decline warrants a critical examination of the shadow economy, a lesser-explored determinant of FDI, impeded by measurement challenges. By focusing on the roles of smuggling and tax evasion − two key components of the shadow economy − this study examines their impact on Malaysia’s attractiveness to foreign investors. Our research utilises data from Malaysian Customs annual reports from 1999 to 2018 and employs the autoregressive distributed lag technique to analyse the relationship between the shadow economy and FDI inflows. The findings reveal a significant negative impact: the uncertainties created by smuggling and tax evasion impose additional costs on investors, thereby deterring FDI. This study underscores the urgent need for Malaysia to enhance its investment climate through the establishment of transparent and unambiguous laws, rules and regulations, thereby reducing investor uncertainty and revitalising FDI inflows.

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https://doi.org/https://doi.org/10.22452/mjes.vol62no2.7

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@article{tengku2025,
  title        = {{Shadow Economy and Foreign Direct Investment Inflows: Evidence from Malaysia}},
  author       = {Tengku Rafidatul Akma Tengku Razali et al.},
  journal      = {Malaysian Journal of Economic Studies},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.22452/mjes.vol62no2.7},
}

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Shadow Economy and Foreign Direct Investment Inflows: Evidence from Malaysia

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Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.