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Determinants Of Private Investment In Malaysia: What Causes The Postcrisis Slumps?

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  • JAMES B. ANG

Abstract

"This paper examines the determinants of private investment in Malaysia, with an emphasis on the postcrisis investment slumps. A static private investment function is derived from the neoclassical framework, with appropriate modifications to account for the structural features observed in the country. To introduce dynamics into the model, we adopt a cost minimization problem, which assumes firms optimize investment levels with respect to a quadratic loss function. The results suggest that the availability of financial resources in the economy has a significant positive impact on private investment. Macroeconomic uncertainty exerts a negative influence on the investment climate in the private sector. Both foreign direct investment and public investment are found to have a complementary effect on private investment. Consistent with the prediction of the neoclassical model, a higher level of aggregate output raises private investment, whereas the user cost of capital has the opposite impact." ("JEL" O"16", O"53") Copyright (c) 2009 Western Economic Association International.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

Volume (Year): 28 (2010)
Issue (Month): 3 (07)
Pages: 378-391

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Handle: RePEc:bla:coecpo:v:28:y:2010:i:3:p:378-391

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Cited by:
  1. Anwar, Sajid & Sun, Sizhong, 2011. "Financial development, foreign investment and economic growth in Malaysia," Journal of Asian Economics, Elsevier, vol. 22(4), pages 335-342, August.
  2. Tan, Bee Wah & Tang, Chor Foon, 2011. "The dynamic relationship between private domestic investment, the user cost of capital, and economic growth in Malaysia," MPRA Paper 27964, University Library of Munich, Germany.
  3. Ibrahim, Mansor H. & Ahmed, Huson Joher Ali, 2014. "Permanent and transitory oil volatility and aggregate investment in Malaysia," Energy Policy, Elsevier, vol. 67(C), pages 552-563.

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