Overview

Investment in human and physical capital has been a significant factor in Malaysian GDP growth. Both internal and external sources of finance have been used in promoting investments as well as development expenditures.

But foreign aid could have been used, by a bounded rational bureaucratic policymaker, in many different ways, not all conducive to development.

This paper econometrically assesses the impact of Japanese foreign aid to Malaysia through a path-breaking methodology.

Taxation changes as well as public expenditure composition are taken into account to judge the actual category of behaviour of Malaysian policymakers.

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