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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 O16, O53)

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  • James B. Ang, 2010. "Determinants Of Private Investment In Malaysia: What Causes The Postcrisis Slumps?," Contemporary Economic Policy, Western Economic Association International, vol. 28(3), pages 378-391, July.
    • Handle: RePEc:bla:coecpo:v:28:y:2010:i:3:p:378-391
    DOI: 10.1111/j.1465-7287.2009.00155.x
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    4. Anis Omri & Amel Sassi-Tmar, 2015. "Linking FDI Inflows to Economic Growth in North African Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 6(1), pages 90-104, March.
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    7. Neville Francis & Sergio Restrepo-Angel, 2018. "Sectoral and aggregate response to oil price shocks in the Colombian economy: SVAR and Local Projections approach," Borradores de Economia 1055, Banco de la Republica de Colombia.
    8. Murakami, Hiroki & Sasaki, Hiroaki, 2020. "Economic development with public capital accumulation: The crucial role of wage flexibility on business cycles," Economic Modelling, Elsevier, vol. 93(C), pages 299-309.
    9. 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.
    10. Sambulo Malumisa, 2013. "Comparative Analysis of the Determinants and Behaviour of Investment Demand between South Africa and Zimbabwe," Journal of Economics and Behavioral Studies, AMH International, vol. 5(6), pages 385-397.
    11. Van Bon Nguyen, 2021. "The relationship between FDI inflows and private investment in Vietnam: Does institutional environment matter?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 1151-1162, January.
    12. 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.
    13. 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.
    14. Lay Lian Chuah & Wai Ching Poon & Balachandher Krishnan Guru, 2018. "Uncertainty and Private Investment Decision in Malaysia," Modern Applied Science, Canadian Center of Science and Education, vol. 12(9), pages 1-71, September.
    15. Omri, Anis & kahouli, Bassem, 2014. "The nexus among foreign investment, domestic capital and economic growth: Empirical evidence from the MENA region," Research in Economics, Elsevier, vol. 68(3), pages 257-263.
    16. repec:ipg:wpaper:2014-558 is not listed on IDEAS
    17. Mansor Ibrahim & Abdullahi Ahmed, 2013. "Stock Market and Aggregate Investment Behavior in Malaysia: An Empirical Analysis," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 20(2), pages 265-284, October.
    18. 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.
    19. Abdul Rahim Ridzuan & Nor Asmat Ismail & Abdul Fatah Che Hamat, 2017. "Does Foreign Direct Investment Successfully Lead to Sustainable Development in Singapore?," Economies, MDPI, vol. 5(3), pages 1-20, August.
    20. Alam, Md. Mahmudul & Murad, Wahid & Noman, Abu Hanifa Md. & Ozturk, Ilhan, 2019. "economic growth; CO2 emissions; population growth; energy consumption; Environmental Kuznets Curve, Brazil, China, India, Indonesia," SocArXiv 8hq6z, Center for Open Science.
    21. Omri, Anis & Kahouli, Bassem, 2013. "The nexus between foreign investment, domestic capital and economic growth: Empirical evidence from the MENA region," MPRA Paper 82505, University Library of Munich, Germany, revised Oct 2013.
    22. Chiranjivi, GVS & Sensarma, Rudra, 2023. "The effects of economic and financial shocks on private investment: A wavelet study of return and volatility spillovers," International Review of Financial Analysis, Elsevier, vol. 90(C).
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    24. Akçay Selçuk & Karasoy Alper, 2020. "Determinants of private investments in Turkey: Examining the role of democracy," Review of Economic Perspectives, Sciendo, vol. 20(1), pages 23-49, March.

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    More about this item

    JEL classification:

    • 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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