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Private and public investment in Malaysia: Substitutability or complementarity?

It is generally accepted that the government plays a major role in promoting and/or financing private capital formation. Policymakers and analysts believe that public investment provides a significant stimulus to private investment, and thus serves as an instrument in achieving a high economic growt...

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Main Authors: Hassan, Sallahuddin, Abd Karim, Mohd Zaini
Format: Article
Published: 2007
Subjects:
HG Finance
Online Access:http://repo.uum.edu.my/1588/
http://ideas.repec.org/a/icf/icfjae/v06y2007i2p17-32.html
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spelling my.uum.repo.15882010-11-25T07:28:16Z http://repo.uum.edu.my/1588/ Private and public investment in Malaysia: Substitutability or complementarity? Hassan, Sallahuddin Abd Karim, Mohd Zaini HG Finance It is generally accepted that the government plays a major role in promoting and/or financing private capital formation. Policymakers and analysts believe that public investment provides a significant stimulus to private investment, and thus serves as an instrument in achieving a high economic growth rate. However, empirically, there is a lack of consensus on whether public investment plays a role as complement or substitute to private investment. Hence, the objective of this study is to ascertain this evidence in the case of Malaysia. Using the error correction model analysis, in the short-run, the results show that public investment does not affect private investment. However, public investment has a positive effect on private investment in the long-run indicating a complementary relationship between the two. This result indicates that, public and private investment complement each other. This might be the case where increase in public capital raises the marginal productivity of private capital, resulting in a greater use of private capital. The results support the Malaysian government policy of using government expenditures�where most of the government expenditure is on infrastructure investment�as a tool to increase aggregate demand since private investment respond positively to public investment in the long-run. 2007 Article PeerReviewed Hassan, Sallahuddin and Abd Karim, Mohd Zaini (2007) Private and public investment in Malaysia: Substitutability or complementarity? The IUP Journal of Applied Economics, 6. pp. 17-32. http://ideas.repec.org/a/icf/icfjae/v06y2007i2p17-32.html
institution Universiti Utara Malaysia
building UUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Utara Malaysia
content_source UUM Institutionali Repository
url_provider http://repo.uum.edu.my/
topic HG Finance
spellingShingle HG Finance
Hassan, Sallahuddin
Abd Karim, Mohd Zaini
Private and public investment in Malaysia: Substitutability or complementarity?
description It is generally accepted that the government plays a major role in promoting and/or financing private capital formation. Policymakers and analysts believe that public investment provides a significant stimulus to private investment, and thus serves as an instrument in achieving a high economic growth rate. However, empirically, there is a lack of consensus on whether public investment plays a role as complement or substitute to private investment. Hence, the objective of this study is to ascertain this evidence in the case of Malaysia. Using the error correction model analysis, in the short-run, the results show that public investment does not affect private investment. However, public investment has a positive effect on private investment in the long-run indicating a complementary relationship between the two. This result indicates that, public and private investment complement each other. This might be the case where increase in public capital raises the marginal productivity of private capital, resulting in a greater use of private capital. The results support the Malaysian government policy of using government expenditures�where most of the government expenditure is on infrastructure investment�as a tool to increase aggregate demand since private investment respond positively to public investment in the long-run.
format Article
author Hassan, Sallahuddin
Abd Karim, Mohd Zaini
author_facet Hassan, Sallahuddin
Abd Karim, Mohd Zaini
author_sort Hassan, Sallahuddin
title Private and public investment in Malaysia: Substitutability or complementarity?
title_short Private and public investment in Malaysia: Substitutability or complementarity?
title_full Private and public investment in Malaysia: Substitutability or complementarity?
title_fullStr Private and public investment in Malaysia: Substitutability or complementarity?
title_full_unstemmed Private and public investment in Malaysia: Substitutability or complementarity?
title_sort private and public investment in malaysia: substitutability or complementarity?
publishDate 2007
url http://repo.uum.edu.my/1588/
http://ideas.repec.org/a/icf/icfjae/v06y2007i2p17-32.html
_version_ 1644278015167823872
score 13.211869

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