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DETERMINANTS OF PRIVATE INVESTMENT IN MALAYSIA: WHAT CAUSES THE POSTCRISIS SLUMPS?
Author(s) -
ANG JAMES B.
Publication year - 2010
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.2009.00155.x
Subject(s) - investment (military) , gross private domestic investment , investment function , open ended investment company , economics , foreign direct investment , umbrella fund , return on investment , monetary economics , capital (architecture) , microeconomics , production (economics) , macroeconomics , history , archaeology , politics , political science , law
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 O 16 , O 53 )