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The Dynamic Relationship Between Private Domestic Investment, the User Cost of Capital, Public Investment, Foreign Direct Investment and Economic Growth in Malaysia


  • Bee Wah Tan
  • Chor Foon Tang


This study attempts to examine the dynamic relationship between private domestic investment (PDI), the user cost of capital, public investment (PUB), FDI and economic growth in Malaysia over the period of 1970 to 2009. The Johansen cointegration test suggests that PDI, the user cost of capital, public investment, FDI and economic growth are cointegrated in Malaysia. The Granger causality test reveals that there is bi-directional causality between the variables in the long run. Meanwhile, there is strong evidence of bi-directional causality between PDI and economic growth. In addition, the user cost of capital, PUB and FDI show bi-directional causality with PDI and GDP in the short run. For completeness, generalised variance decomposition is also generated and the results suggest that PDI and FDI are more important than the user cost of capital and PUB in explaining the variation in economic growth. Finally, the generalised impulse response function confirms that a shock to the GDP, PUB and FDI exerts a positive effect on PDI, while the user cost capital exerts a negative effect on PDI in Malaysia.

Suggested Citation

  • Bee Wah Tan & Chor Foon Tang, 2012. "The Dynamic Relationship Between Private Domestic Investment, the User Cost of Capital, Public Investment, Foreign Direct Investment and Economic Growth in Malaysia," Economia politica, Società editrice il Mulino, issue 2, pages 221-246.
  • Handle: RePEc:mul:jb33yl:doi:10.1428/37630:y:2012:i:2:p:221-246

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    Cited by:

    1. Tang, Chor Foon & Yip, Chee Yin & Ozturk, Ilhan, 2014. "The determinants of foreign direct investment in Malaysia: A case for electrical and electronic industry," Economic Modelling, Elsevier, vol. 43(C), pages 287-292.
    2. Abina, Praise Adedigba, 2019. "External Debt, Exchange Rate, Foreign Investments and Economic Growth Inter-Relationships Further Empirical Evidence from Nigeria," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 6(2), pages 101-107.
    3. Bee Wah Tan & Chor Foon Tang, 2016. "Examining the Causal Linkages among Domestic Investment, FDI, Trade, Interest Rate and Economic Growth in ASEAN-5 Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 6(1), pages 214-220.
    4. Tang, Chor Foon & Tan, Bee Wah & Ozturk, Ilhan, 2016. "Energy consumption and economic growth in Vietnam," Renewable and Sustainable Energy Reviews, Elsevier, vol. 54(C), pages 1506-1514.

    More about this item


    J.E.L. C22; E22; O16; O53;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East


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