PRIVATE INVESTMENT AND FINANCIAL SECTOR POLICIES IN DEVELOPING COUNTRIES

Abstract

This paper examines the role of financial sector policies in determining private investment in the economies of India and Malaysia. The results suggest that the presence of significant directed credit programs favoring certain priority sectors in the economies appear to be harmful for private capital formation in both countries. Interest rate controls seem to have a positive impact on investment in the private sector, and the effect is found to be stronger in India. While high reserve and liquidity requirements exert a negative influence on private investment in India, the effect is found to be positive in Malaysia.Private investment; financial sector policies; India; Malaysia.