of a cross-country regression for more than 100 countries, after controlling for the stage of development, non-linearity’s in development and country specific features. Malaysia remains a large and significant positive outlier in savings and is above the global norm. It is a more pronounced positive outlier than India but less of an outlier compared to China. This bodes well for Malaysia.

Panel A of Table 6 reports the results of a similar regression for investment. In 1995 Malaysia was a significant positive outlier in investment compared to the rest of the world after controlling for income per capita, size and non-linearity in growth. It was a bigger outlier than either China or India. However, the investment boom in Malaysia appears to be over. The investment patterns now appear to be no different from the rest of world, once we control for the stage of development. More importantly, the cross-country regressions highlight that dependence on external finance has declined over time for Malaysia.

Which sectors will be impacted by the decline in investment rates? Table 7 Panel A and B report cross-country regression results for manufacturing and service output as dependent variables for the time period 1995-2007 for over 150 countries. The results indicate that investment is more important for growth in the more capital intensive manufacturing sector than services growth.

The combination of high domestic savings and declining demand for external financing has safeguarded Malaysia from the volatility of international financial markets. On the other hand, Malaysia is therefore not taking advantage of the collateral benefits of financial globalization. Malaysia has not taken full advantage of network externalities that countries such as Singapore have utilized from financial globalization. The flow of foreign financing in Malaysia is directed towards the goods export basket whereas neighboring countries like Singapore have taken advantage of globalization of services.

Foreign Direct Investment (FDI) is generally regarded as highly effective mechanism for the transfer of technology, skills, and management practices. In addition, it is less prone to volatile swings in line with global business cycles, as the foreign-held assets are in general longterm. To examine the openness of Malaysia to FDI, we use the FDI Regulatory Restrictions Index published periodically by the OECD. This index, published at the sector level for a variety of countries, should provide a natural gauge for the openness of Malaysia to FDI across sectors and over time.

The OECD separately examines four distinct measures of restrictions: i) foreign equity restrictions; ii) screening and prior approval requirements; iii) rules for key personnel; and iv) other restrictions on foreign enterprises.<sup>17</sup> We report the total index score, summing over these four measures, which is scaled between 0 (no restrictions) and 1 (foreign ownership forbidden). Figure 18 summarizes our findings over the period 1997-2012. Panel A compares the index score between the manufacturing sector and the Tertiary sector for Malaysia.<sup>18</sup> As is clear from the

> 17 Rules on state ownership are not scored, provided they are not discriminatory toward foreign enterprises in particular. For more information on the methodology, see Kalinova et al (2010).

> 18 The Tertiary sector consists of Distribution, Transport, Hotels and Restaurants, Media, Communications, Financial Services, Business Services, and Real Estate Investment.

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