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Growth without private investment: what happened in Malaysia and can it be fixed?

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  • Jayant Menon

Abstract

Private investment in Malaysia has never fully recovered from the impact of the Asian Financial Crisis (AFC). Both domestic and foreign investment have remained lackluster post-AFC; while foreigners continue to shun Malaysia, it seems even domestic investors are fleeing as well, with Malaysia having become a net exporter of capital since 2005. Malaysia continues to grow but, without private investment, it is unlikely to break out of the middle-income trap. The crucial questions are: what happened and can it be fixed? We argue that the investment malaise can be attributed to two inter-related factors: (i) distortions introduced by the New Economic Policy (NEP) and its reincarnates, and (ii) the widespread presence and overbearing influence of government-linked corporations (GLCs) that deter new investment. While the impacts of both factors may have been masked during the heady days leading up to the AFC, this is no longer the case in the current competitive environment where residency options for both capital and skilled labor are much greater. Fixing the problem requires addressing the distortions of the NEP and curtailing the influence of the GLCs. Although there have been a few recent moves to dilute the NEP, some of these measures have already been reversed. Similarly, while there has been an active program of divestment from GLCs, there have also been GLC acquisitions in new sectors, making it more of a diversification than a divestment program. Malaysia's investment malaise can be fixed, but not in this way.

Suggested Citation

  • Jayant Menon, 2014. "Growth without private investment: what happened in Malaysia and can it be fixed?," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 19(2), pages 247-271, April.
    • Handle: RePEc:taf:rjapxx:v:19:y:2014:i:2:p:247-271
    DOI: 10.1080/13547860.2013.820471
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    References listed on IDEAS

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    1. Menon , Jayant & Ng, Thiam Hee, 2013. "Are Government-Linked Corporations Crowding out Private Investment in Malaysia?," ADB Economics Working Paper Series 345, Asian Development Bank.
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    Cited by:

    1. Guanie Lim & Andrew Jia-Yi Kam, 2024. "Chinese Investment in Malaysia: (De)Industrialization amidst Greater Financial and Trade Connectivity," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 36(3), pages 571-600, June.
    2. Dinh Thanh, Su & Hart, Neil & Canh, Nguyen Phuc, 2020. "Public spending, public governance and economic growth at the Vietnamese provincial level: A disaggregate analysis," Economic Systems, Elsevier, vol. 44(4).
    3. King Yoong Lim & Shuonan Zhang, 2023. "Optimal fiscal management in an economy with resource revenue‐financed government‐linked companies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 2202-2225, April.
    4. Jeevitha Mariapun & Noran N Hairi & Chiu-Wan Ng, 2016. "Are the Poor Dying Younger in Malaysia? An Examination of the Socioeconomic Gradient in Mortality," PLOS ONE, Public Library of Science, vol. 11(6), pages 1-12, June.

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