Does Corruption Dent Investment? Evidence from the 1MDB Scandal and Malaysian FDI Inflows in ASEAN-5, 2000–2024
Year: 2026
Type: article
Abstract: This study examines whether the 1MDB scandal produced a detectable effect on Malaysian foreign direct investment (FDI) inflows relative to its ASEAN peers. Furthermore, this research uses a two-way fixed-effects Difference-in-Differences (DiD) design over 2000–2024, treating Malaysia as the treated unit and 2015, the year the scandal was officially exposed, as the treatment cutoff. An annual panel dataset sourced from the World Bank is employed, with GDP per capita growth, unemployment, and trade openness incorporated as control variables. According to the results, the interaction term (MALAYSIA × POST2015) remains positive across all four estimators, Pooled OLS, Fixed Effects, Random Effects, and TWFE DiD, yet never reaches statistical significance at the 5% level. Moreover, a Hausman test confirms Fixed Effects as the preferred specification, and a battery of post-diagnostic tests, namely Breusch-Pagan, Wooldridge, and VIF, indicates no heteroskedasticity, serial correlation, or multicollinearity concerns. A placebo test shifting the treatment year to 2012 likewise yields an insignificant coefficient, thereby reinforcing the credibility of the main finding. In short, those numbers suggest that Malaysia's accumulated macroeconomic reputation, principally driven by robust GDP per capita growth, absorbed the reputational shock of the 1MDB scandal without a statistically detectable dent to FDI inflows.
Author: Gde Putra Dananjaya
Institution: Udayana University
Language: English
Subfield: Sociology and Political Science
Field: Social Sciences
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W7222912026