Beyond Conventional Risk: The Alternative Political Economy of GCC Foreign Direct Investment Resilience in Malaysia, 2018–2023

Abstract

This article examines the factors sustaining Gulf Cooperation Council (GCC) foreign direct investment (FDI) inflows into Malaysia during a period of concurrent and multidimensional instability between 2018 and 2023. Conventional political risk theory predicts that instability — encompassing political discontinuity, economic contraction, pandemic disruption, and governance turbulence — should prompt investor withdrawal. Yet GCC-linked capital maintained and substantially expanded its engagement with Malaysia over this period, growing from an estimated USD 1.82 billion in 2018 to USD 6.15 billion in 2023, a trajectory that directly contradicts mainstream FDI theory. Drawing on an interpretivist-constructivist philosophical paradigm and 45 in-depth semi-structured interviews with Malaysian government officials, GCC diplomatic representatives, GCC investment executives, and academic experts, this study develops and empirically validates an original theoretical framework designated the Alternative Political Economy of Investment Confidence (APEIC). The APEIC framework proposes that GCC investor confidence is sustained not through the conventional institutional guarantees privileged in standard FDI theory, but through three interrelated alternative mechanisms: bilateral diplomatic relations, Malaysia’s Islamic economic infrastructure, and shared Islamic identity. Findings reveal that GCC sovereign wealth funds operate under a dual mandate combining financial returns with national strategic objectives, and a long-term investment horizon of 15 to 25 years that renders short-term political instability comparatively negligible. The study extends Dunning’s OLI Paradigm by proposing Islamic economic infrastructure as a novel category of location-specific advantage for GCC investors, and introduces ‘total instability’ as a multi-dimensional analytical construct for the FDI literature.