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Private and Public Investment in Malaysia: A Panel Time-Series Analysis


  • Sallahuddin Hassan

    (School of Economics, Finance and Banking Economics Building, Universiti Utara, Malaysia.)

  • Zalila Othman

    (School of Economics, Finance and Banking Economics Building, Universiti Utara, Malaysia.)

  • Mohd Zaini Abd Karim

    (School of Economics, Finance and Banking Economics Building, Universiti Utara, Malaysia.)


Public capital hypothesis explains that a positive relationship exists between private and public investment. This paper examines the validity of the hypothesis by using a panel time series analysis on four sectors of the Malaysian economy (agriculture, industry and trade, transportation and communication, and construction). Panel co-integration analysis is used to prove the relationship between private domestic investment and public investment by using panel data for the period of 1976–2006. Two interaction variables, public investment and gross domestic product and investment and privatization policy were included as independent variables to take into account the influence of gross domestic product and privatization policy on the effect of public investment on private investment. Results of the study indicate that public investment has positive effect on private investment in all the three sectors except agricultural sector, suggesting that government expenditure encourage more private investment if focus is given towards productive expenditure.

Suggested Citation

  • Sallahuddin Hassan & Zalila Othman & Mohd Zaini Abd Karim, 2011. "Private and Public Investment in Malaysia: A Panel Time-Series Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 1(4), pages 199-210.
  • Handle: RePEc:eco:journ1:2011-04-6

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    Cited by:

    1. Hwa-Taek Lee & Gawon Yoon, 2013. "Does purchasing power parity hold sometimes? Regime switching in real exchange rates," Applied Economics, Taylor & Francis Journals, vol. 45(16), pages 2279-2294, June.

    More about this item


    Public capital hypothesis; Panel time-series; Malaysia;

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General


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