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

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Listed:
  • Jayant Menon
  • Thiam Hee Ng

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.

Suggested Citation

  • Jayant Menon & Thiam Hee Ng, 2013. "Are Government-Linked Corporations Crowding out Private Investment in Malaysia?," Departmental Working Papers 2013-03, The Australian National University, Arndt-Corden Department of Economics.
    • Handle: RePEc:pas:papers:2013-03
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    References listed on IDEAS

    as
    1. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    2. Menon, Jayant, 2012. "Malaysia’s Investment Malaise: What Happened and Can It Be Fixed?," ADB Economics Working Paper Series 312, Asian Development Bank.
    3. Nazrul Hisyam Ab Razak & Rubi Ahmad & Huson Aliahmed Joher, 2011. "Does Government Linked Companies (GLCs) perform better than non-GLCs? Evidence from Malaysian listed companies," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 1(1), pages 1-10.
    4. Ann E. Harrison & Margaret S. McMillan, 2001. "Does Direct Foreign Investment Affect Domestic Firms' Credit Constraints?," NBER Working Papers 8438, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Khoo De Kai & Ismail Bin Abd Rahman, 2018. "The Impact of Financial Indicators towards Stock Returns of Finance Companies Listed on Bursa Malaysiae," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 8(3), pages 128-140, July.
    2. 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.
    3. Lim, Kian-Ping & Hooy, Chee-Wooi & Chang, Kwok-Boon & Brooks, Robert, 2016. "Foreign investors and stock price efficiency: Thresholds, underlying channels and investor heterogeneity," The North American Journal of Economics and Finance, Elsevier, vol. 36(C), pages 1-28.
    4. Cassey LEE & Yoshifumi FUKUNAGA, 2013. "Competition Policy Challenges of Single Market and Production Base," Working Papers DP-2013-17, Economic Research Institute for ASEAN and East Asia (ERIA).
    5. Guanie Lim, 2014. "The Internationalisation of Mainland Chinese Firms into Malaysia: From Obligated Embeddedness to Active Embeddedness," Journal of Current Southeast Asian Affairs, Institute of Asian Studies, GIGA German Institute of Global and Area Studies, Hamburg, vol. 33(2), pages 59-90.

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    More about this item

    Keywords

    Malaysia; private investment; government-linked corporations(GLCs); crowding-out;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • J78 - Labor and Demographic Economics - - Labor Discrimination - - - Public Policy (including comparable worth)
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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