Noorazeela Zainol Abidin^1♣, Ummi Naiemah Saraih¹, and Intan Maizura Abd Rashid^2
1Centre of Excellence for Social Innovation and Sustainability (COESIS), Faculty of
Applied and Human Sciences, Universiti Malaysia Perlis, Perlis, Malaysia
²Faculty of Business and Management, Universiti Teknologi MARA, Melaka Branch,
Alor Gajah, Melaka, Malaysia

Foreign direct investment (FDI) is essential to each country because it can increase economic growth. However, political and economic instability can affect the FDI inflow into a country. This study investigated the effect of FDI on wages in the Malaysian manufacturing sector for the period 1985–2018 by using the Autoregressive Distributed Lag (ARDL) method. The unit root test result showed that all the variables were stationary at first difference. The results obtained showed significant positive relationships between FDI and wage in the long and short run. Besides, education and skilled labour also showed a significant and positive relationship with wages in the manufacturing sector in the short run. Therefore, this study suggests that the policy makers have to stimulate a new policy to attract more investors to invest in Malaysia, especially in the manufacturing sector, as it has a positive effect on wages and increases employment in the host country. Other than that, the FDI inflow can also bring technology and human capital spillover.

Keywords: Education, Foreign Direct Investment, Manufacturing Sector, Wage

^♣Corresponding Author: Noorazeela Zainol Abidin, Centre of Excellence for Social Innovation and Sustainability, Faculty of Applied and Human Sciences, Universiti Malaysia Perlis, Jalan Kangar-Alor setar, 01000 Kangar, Perlis, Malaysia; Email: This email address is being protected from spambots. You need JavaScript enabled to view it.; Tel: +60195217940