This study employs the autoregressive distributed lags model and the non-linear
autoregressive distributed lags model to determine the linear and non-linear relationship
between foreign direct investments (FDIs) and economic growth in Malaysia from 1982 to
2017. The main results indicate that an increase (decrease) in FDIs increases (lowers)
economic growth. Besides, the Wald test output suggests that the magnitude of reactions in
economic growth after a change in FDIs is considered equal in the short run. In the long run,
however, the decline of gross domestic products after a reduction in FDIs is higher than the
increase in gross domestic products after an increase in FDIs. Therefore, the authorities
should implement policies that attract new FDI and retain the existing FDI. Correspondingly,
more policy interventions are needed when net FDI decreases.
