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Investment in The SEACEN Countries in The Post-Crisis Era: Issues and Challenges

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  • Choon-Seng Lim
  • Vincent
  • Min B. Shrestha

Abstract

Since the 1997 Asian financial crisis, some SEACEN countries have been unable to achieve pre-crisis levels of investments. Many reasons were cited by the literature and these include a shift in investors¡¯ perceptions, weaker exchange rates which make prices of imported investment goods more expensive, overinvestment in various sectors of the economy, unsettled political and security conditions, weak financial systems and governance systems, implicit state guarantees and the ¡®hollowing out¡¯ effect where excessive outward foreign investment has reduced domestic investment. This paper notes that the region has successfully implemented various policies related to investment such as liberalisation of the investment sectors, the promotion of the competitive sector, direct involvement of the government and privatisation to encourage investment. The study also highlights the importance of research and the infusion of capital and technology in promoting new investment. From a macro perspective, the study suggests that central banks can also play an important role in promoting investment. Marco economic factors such as real interest rates, the availability of domestic credit, exchange rate volatility are important determinants of investment. This implies that given the right economic fundamentals, to stimulate investment, central banks should ceteris paribus, adopt an expansionary monetary stance while heeding the inflation rate. The study also suggests the importance of the banking sector in the promotion of investment. As the financial sectors of the SEACEN countries are already liberalised, pro-active financial supervision can play an important role in ensuring financial stability in order to facilitate improved access to credit. It is also noted that the current US mortgage sub-prime crisis will raise new challenges to the revival of private investment in the SEACEN countries. While the direct effect of the subprime crisis is through the external sector, its indirect effect through distressed and non-performing loans may result in selfreinforcement between the financial markets and the real economy.

Suggested Citation

  • Choon-Seng Lim & Vincent & Min B. Shrestha, 2009. "Investment in The SEACEN Countries in The Post-Crisis Era: Issues and Challenges," Research Studies, South East Asian Central Banks (SEACEN) Research and Training Centre, number rp77, April.
  • Handle: RePEc:sea:rstudy:rp77
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    References listed on IDEAS

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    1. Magnoli Bocchi, Alessandro, 2008. "Rising growth, declining investment : the puzzle of the Philippines," Policy Research Working Paper Series 4472, The World Bank.
    2. Svensson, Jakob, 1998. "Investment, property rights and political instability: Theory and evidence," European Economic Review, Elsevier, vol. 42(7), pages 1317-1341, July.
    3. Jongwanich, Juthathip & Kohpaiboon, Archanun, 2008. "Private Investment: Trends and Determinants in Thailand," World Development, Elsevier, vol. 36(10), pages 1709-1724, October.
    4. Bleaney, Michael & Greenaway, David, 2001. "The impact of terms of trade and real exchange rate volatility on investment and growth in sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 65(2), pages 491-500, August.
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