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

Jayant Menon () and Thiam Ng

Departmental Working Papers from The Australian National University, Arndt-Corden Department of Economics

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.

Keywords: Malaysia; private investment; government-linked corporations(GLCs); crowding-out (search for similar items in EconPapers)
JEL-codes: E22 F20 F21 J78 O53 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2013
New Economics Papers: this item is included in nep-mac and nep-sea
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Citations: View citations in EconPapers (5)

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