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

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. To revive private investment in Malaysia, government must not only redress its growing fiscal deficit, but also expedite its program of divestment.

This paper presents evidence of the negative impact government-linked corporations have on private investment in Malaysia due to their dominance over private firms in various sectors.

  • Abstract
  • Introduction
  • Overview of GLC presence and the GLC transformation program
  • How could GLCs crowd out Private Investment? Theory and evidence
  • Data
  • Model and method
  • Results
  • Conclusion
  • References

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