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Are Government-Linked Corporations Crowding out Private Investment in Malaysia?

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  • Jayant Menon
  • Thiam Hee Ng

Abstract

Private investment in Malaysia has been sluggish since the Asian financial crisis. One explanation is that the growing presence of government-linked corporations(GLCs) has been crowding out private investment. For the first time, we provide empirical evidence on the relationship between GLC presence and private investment. We find that when GLCs are dominant in an industry, investment by private firms is significantly negatively impacted. Conversely, when GLCs do not dominate an industry, the impact on private investment is not seen. Sensitivity tests associated with varying the level of the threshold used to determine dominance confirm the robustness of the results. To revive private investment in Malaysia, government must not only redress its growing fiscal deficit, but also expedite its program of divestment.

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File URL: https://crawford.anu.edu.au/acde/publications/publish/papers/wp2013/wp_econ_2013_03.pdf
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Bibliographic Info

Paper provided by The Australian National University, Arndt-Corden Department of Economics in its series Departmental Working Papers with number 2013-03.

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Length: 32 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:pas:papers:2013-03

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Keywords: Malaysia; private investment; government-linked corporations(GLCs); crowding-out;

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  1. R. Glenn Hubbard, 1997. "Capital-Market Imperfections and Investment," NBER Working Papers 5996, National Bureau of Economic Research, Inc.
  2. Ann E. Harrison & Margaret S. McMillan, 2001. "Does Direct Foreign Investment Affect Domestic Firms' Credit Constraints?," NBER Working Papers 8438, National Bureau of Economic Research, Inc.
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