Capital flows and industrialisation

Abstract

In recent years, increased attention has been focussed on the macroeconomic implications of capital flows. While such flows can benefit the recipient country in terms of financing investment activities that are in excess of domestic savings, it nevertheless becomes a matter of concern when it becomes a source of macroeconomic instability. Capital flows into Malaysia is not a new phenomenon given the openness of the economy and the relatively liberal exchange control regime that has operated in Malaysia over several decades. Indeed, the inflow of foreign savings has infact been an important element in the growth process. This paper aims to examine the significance and implications of capital flows on the industrialisation process. These include inflows in the form of foreign direct investment, borrowings by both the private and public sectors and portfolio flows.