Post on 29-Jan-2023
Malaysia Truly AsiaGrowth Accounting: 1990-2010
Ilyana Badlisham, Gayatri Bahadur, Sue Chen, Andisya Siregar
Introduction
There are two primary focuses to this paper – the first is a
quantitative objective to calculate Total Factor Productivity
(TFP) growth in Malaysia over a twenty year period using data
regarding output, labor and capital. The second part is to
analyze and understand the economic and political policies and
qualitative reasoning behind the results we obtained. The twenty
year period we chose to focus on was from 1990-2010, primarily
because the employment data we had for Malaysia only began in
1990.
Given that economic growth is the predecessor for economic
development, it will be interesting to see whether policies aimed
at promoting growth managed to spur development as well.
Additionally, our selected time period includes the financial
crisis of 2007-2009 and given Malaysia’s investment in export
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processing zones it would be interesting to look at the effects
on the country’s economy.
Malaysia is extremely multi-ethnic and multi-cultural which
has a strong impact on its politics. Although the constitution
declares Islam as the official religion, there is still freedom
of religion and a large population of Buddhists, Christians and
Hindus.
In the 1970s, Malaysia was a producer of raw materials but
it has developed into an emerging multi-sector economy. According
to a 2012 estimate, 48.3% of GDP is attributed to services, 40.2%
to industry and 11.4% to agriculture. As of 2010, the energy
sector contributed to 20% of GDP, palm oil exports are the fourth
largest component of GDP, and financial services contributed to
11% of GDP. Malaysia’s unemployment is low at around 3% and its
currency has been appreciating in the last five years. Under
Prime Minister Najib, the goal is to be classified as a high-
income country by 2020.
Methodology and Data
3
This section is dedicated to computing TFP of the Malaysian
economy from 1990-2010. Table 1 shows the construction of capital
stock (K):
Table 1: Constructing Capital Stock
Year
Gross Fixed Capital Formation - Local LCU in millions
Consumption of Fixed CapitalLocal LCU in millions
Capital Stock (K)Local LCU in millions
1990 60,602.11 22,752.35 41,8814.53
1991 74,155.94 25,244.30 47,0218.11
1992 82,305.80 28,098.23 527,279.61
1993 96,955.62 31,266.92 596,137.00
1994 112,584.90 34,525.40 677,454.98
1995 138,299.34 39,355.00 781,228.91
1996 149,662.86 43,706.24 891,536.78
1997 163,375.43 46,778.56 1,011,205.97
1998 931,79.59 41,728.97 1,057,607.00
1999 87,084.93 44,642.72 1,102,962.97
2000 110,092.32 48,885.40 1,168,412.57
2001 107,821.86 49,034.20 1,227,349.03
2002 108,444.74 51,887.20 1,286,759.57
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2003 111,528.61 55,066.85 1,346,400.98
2004 115,491.84 59,230.31 1,406,825.97
2005 121,237.00 61,756.13 1,468,832.66
2006 128,832.00 65,728.61 1,535,908.54
2007 142,178.00 70,717.10 1,612,357.93
2008 145,525.00 74,922.95 1,687,165.83
2009 141,584.00 73,046.67 1,753,826.88
2010 156,346.00 79,084.30 1,837,126.21
Source: WorldBank
The formula that was used was:
where is the capital stock during the year in question, is
capital stock in the previous year, is consumption of capital
is the previous year and is the gross fixed capital
formation in the current year. This formula uses consumption of
fixed capital to calculate the gross fixed capital formation, but
is equivalent to the perpetual inventory method formula which
incorporates depreciation. In Table 1, depreciation is assumed to
be constant at 5% and fixed capital was found at % of GNI on the
WorldBank.
5
Next, the employment, or number of people in the Malaysian
economy needed to be derived:
Table 2: Calculating Employment
YearEmployment to Population Ratio
Population (millions)
Employment (millions)
1991 60.10 18.71 11.241992 60.00 19.21 11.521993 59.80 19.70 11.781994 59.90 20.21 12.101995 60.40 20.73 12.521996 60.80 21.26 12.931997 60.70 21.81 13.241998 60.30 22.36 13.481999 60.10 22.90 13.762000 61.50 23.42 14.402001 60.90 23.93 14.572002 60.60 24.41 14.792003 60.20 24.89 14.982004 60.00 25.37 15.222005 59.80 25.84 15.452006 59.60 26.33 15.692007 59.40 26.81 15.932008 59.00 27.30 16.112009 58.40 27.79 16.232010 58.50 28.28 16.542011 58.60 28.76 16.85
Source: WorldBank
The employment was calculated by obtaining the employment-to-
population ratio and population statistics and then multiplying
the employment-to-population ratio by the population.
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All the growth rates in this paper were calculated using the
formula:
The following table shows the growth rates of GDP (Y), Capital
Stock (K) and Employment (L). Due to limited information
available, it was not possible to calculate the employment growth
rate for 1991. From 1991 to 2011 the average growth rate of GDP
was 5.88%, of Capital Stock was 7.04% and of Employment was
2.05%.
Table 3: Growth Rates of Y, K and L
Year GDP GrowthRate
CapitalGrowthRate
EmploymentGrowth Rate
1991 9.55% 11.74% NA1992 8.88% 11.63% 2.48%1993 9.90% 12.54% 2.24%1994 9.21% 13.10% 2.74%1995 9.83% 14.66% 3.42%1996 10.00% 13.56% 3.26%1997 7.32% 12.84% 2.40%1998 -7.36% 4.02% 1.84%1999 6.14% 3.10% 2.08%2000 8.86% 4.93% 4.67%2001 0.52% 4.27% 1.16%2002 5.39% 3.94% 1.54%2003 5.79% 3.85% 1.28%2004 6.78% 3.82% 1.57%2005 5.33% 3.92% 1.55%
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2006 5.58% 4.12% 1.53%2007 6.30% 4.67% 1.51%2008 4.83% 4.45% 1.14%2009 -1.51% 3.81% 0.75%2010 7.15% 4.37% 1.92%2011 5.08% 4.56% 1.88%
Average 5.88% 7.04% 2.05%
To continue with the growth accounting, it was necessary to
obtain or estimate a value of α to represent the share of profits
in the Malaysian economy. The value of 1-α represents the amount
of wages in the economy. Since information on the value of α in
the Malaysian economy was not readily available, 0.3 was used as
an estimate. Furthermore, employment figures alone were not
substantial enough to base total factor productivity upon, and
factors which indicated levels of development within the country
were necessary to reflect a more accurate labor productivity.
Therefore, table 4a shows the Human Development Index (HDI) for
Malaysia over 1991-2011. The HDI ranges from 0-1, with 1 being
the highest score a country can obtain and indicating high levels
of development. There were years where data was omitted, so
constant growth with a linear slope in the HDI was assumed for
the intermittent periods of time.
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Table 4a: HDIYear HDI1991 0.641992 0.651993 0.661994 0.671995 0.671996 0.681997 0.691998 0.701999 0.702000 0.712001 0.722002 0.722003 0.732004 0.742005 0.742006 0.752007 0.752008 0.762009 0.762010 0.762011 0.77
Source: UNDP
The following table shows Table 2 accommodating the HDI
statistics from Table 4a:
Table 4b:
Year GDP (ConstantLCU)
Capital Stock(Constant LCU)
Employment *HDI
1991 237,766.00 495,069.17 7.231992 258,891.00 552,621.51 7.491993 284,509.00 621,946.05 7.751994 310,718.00 703,433.64 8.061995 341,258.00 806,561.30 8.431996 375,393.00 915,896.10 8.81
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1997 402,882.00 1,033,476.73 9.121998 373,233.00 1,074,982.48 9.391999 396,140.00 1,108,318.29 9.692000 431,234.00 1,162,994.70 10.262001 433,466.00 1,212,666.82 10.462002 456,834.00 1,260,478.22 10.712003 483,278.00 1,308,982.92 10.942004 516,061.00 1,359,025.62 11.202005 543,578.00 1,412,311.34 11.472006 573,936.00 1,470,527.77 11.742007 610,087.00 1,539,179.38 11.992008 639,565.00 1,607,745.41 12.192009 629,885.00 1,668,942.14 12.302010 674,946.00 1,741,841.03 12.622011 709,261.00 1,821,233.98 12.91
The production function that will be used in this paper to
calculate TFP is:
In this equation, A represents TFP so by rearranging the equation
to solve for A, it becomes:
Keeping in mind that 0.3 is being used as an estimate for α,
using the equation above, the following table shows us TFP
including the HDI figures to calculate labor productivity as
demonstrated in Table 4b:
Table 5: Calculating TFP
10
Year
GDP (Y) inLCU
(millions)Capital Stock (K)in LCU (millions)
Employment *HDI(L) (millions) TFP (A)
1991 237,766.00 495,069.17 7.23 1,165.421992 258,891.00 552,621.51 7.49 1,196.921993 284,509.00 621,946.05 7.75 1,239.731994 310,718.00 703,433.64 8.06 1,270.031995 341,258.00 806,561.30 8.43 1,297.111996 375,393.00 915,896.10 8.81 1,332.341997 402,882.00 1,033,476.73 9.12 1,345.691998 373,233.00 1,074,982.48 9.39 1,206.941999 396,140.00 1,108,318.29 9.69 1,241.582000 431,234.00 1,162,994.70 10.26 1,280.472001 433,466.00 1,212,666.82 10.46 1,253.452002 456,834.00 1,260,478.22 10.71 1,284.412003 483,278.00 1,308,982.92 10.94 1,323.882004 516,061.00 1,359,025.62 11.20 1,374.822005 543,578.00 1,412,311.34 11.47 1,408.202006 573,936.00 1,470,527.77 11.74 1,445.232007 610,087.00 1,539,179.38 11.99 1,492.612008 639,565.00 1,607,745.41 12.19 1,526.572009 629,885.00 1,668,942.14 12.30 1,477.562010 674,946.00 1,741,841.03 12.62 1,535.322011 709,261.00 1,821,233.98 12.91 1,566.99
This is the growth accounting formula:
It implies that the growth rate of GDP should equal the growth
rate of TFP plus the share of profits in the economy times the
growth rate of capital plus the share of wages in the economy
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times the growth rate of labor. Rearranging the equation solves
for the growth rate of TFP:
The table below shows the calculated yearly growth rates for TFP,
along with the growth rates for GDP, capital stock, and
employment as shown in Table 3:
Table 6: Growth Rates of GDP, Capital, Employment and TPF
YearGDP
GrowthRate
CapitalGrowth Rate
(Employment*HDI) Growth Rate
TFP GrowthRate
1991 9.55% 11.74% NA NA1992 8.88% 11.63% 3.70% 2.70%1993 9.90% 12.54% 3.45% 3.58%1994 9.21% 13.10% 3.94% 2.44%1995 9.83% 14.66% 4.62% 2.13%1996 10.00% 13.56% 4.44% 2.72%1997 7.32% 12.84% 3.56% 1.00%1998 -7.36% 4.02% 2.98% -10.31%1999 6.14% 3.10% 3.21% 2.87%2000 8.86% 4.93% 5.82% 3.13%2001 0.52% 4.27% 2.01% -2.11%2002 5.39% 3.94% 2.39% 2.47%2003 5.79% 3.85% 2.12% 3.07%2004 6.78% 3.82% 2.40% 3.85%2005 5.33% 3.92% 2.37% 2.43%2006 5.58% 4.12% 2.35% 2.63%2007 6.30% 4.67% 2.19% 3.28%2008 4.83% 4.45% 1.67% 2.27%2009 -1.51% 3.81% 0.89% -3.21%2010 7.15% 4.37% 2.59% 3.91%2011 5.08% 4.56% 2.28% 2.06%
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Malaysia’s GDP growth rate can therefore be largely attributed to
its accumulation of capital stock, with employment and TFP
growths also making minor contributions.
Historical Analysis of Data
During the chosen period between 1990-2010, Malaysia
experienced two hard-hitting economic crises: the East Asian 1997
crisis and the 2008 global financial crisis. Although Malaysia is
a relatively young country, the government’s reactionary measures
succeeded in containing both the crisis and defending
developmental efforts towards the economy. In order to obtain a
comprehensive understanding as to how Malaysia was able to better
combat the effects of these crises relative to other countries in
the region, it is essential to note a couple of historic policy
reforms implemented prior to 1990.
The first game-changing economic plan in Malaysia occurred
after the racial riots in 1969. Ethnically heterogeneous, wealth
distribution in the country biasedly favored the Chinese
community during Malaysia’s colonization period. The ethnically
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indigenous Malay population only controlled 9.2% of the country’s
wealth at the time, while non-Malay citizens held 34%. This led
to tension culminating in a riot that resulted in the murder of
hundreds of Chinese by the Malay community. After the tragic
incident, then prime minister Tun Abdul Razak implemented an
affirmative action policy called the “New Economic Policy”. Its
aim was to "eventually eradicate poverty...irrespective of race"
through a rapidly expanding economy, which would reduce the non-
Malay share of the economy in relative terms while still increase
it in absolute terms (Funston). The government embarked on a
wide-ranging investment scheme that established numerous new
public corporations and launched a number of rural development
schemes.
Another major contributor to Malaysia’s macroeconomic
discipline for the crisis occurred during the mid 1980’s
commodity crisis in which the Malaysian central bank, Bank
Negara, tightened regulation policy and encouraged the
consolidation of banks. This led to a rush by smaller commercial
banks to raise new capital resulting in a rapid growth of bank
credit to the real estate and equity sector (ISIS). The
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government made moves to shift the economy towards private sector
control, denationalizing the manufacturing industry, liberalizing
trade barriers to promote foreign direct investment and foreign
ownership of equity and most importantly banning the acceptance
of deposits that were repayable in foreign currency (ISIS).
The adjustments made above contributed towards the healthy
economic growth seen in the 1990’s. The Prime Minister at the
time, Tun Mahathir, proposed the Vision 2020 in 1990 which
targeted the attainment of becoming a high income status nation
by the year 2020. This initiated the “big push” that developing
countries needed to achieve higher growth. These events led to
excess public investment, particularly in the construction
industry which also benefited from the ease of credit lending.
Thus, prior to 1997, Malaysia’s GDP grew at an average 8.3% per
annum outperforming all the other ASEAN countries. As mentioned
before in our analyses, Malaysia’s GDP growth was mainly
attributed to its growth in capital stock. Between the years
1991-1997 the capital growth rate ranged between 11.74% to
14.66%. This growth, along with the Vision 2020 initiative of
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rapid and export oriented growth led to Malaysia as being well
known for being one of the Tiger Cub Economies.
In 1997, when the Thai Baht depreciation exacerbated the
East Asian financial crisis, Malaysia experienced a contraction
in GDP growth of 3% compared to the 10% growth in 1996. The
Malaysian Ringgit came under speculative attack leading to a
massive capital flight by foreign equity owners seeking to make a
profit from selling short on the market. The Malaysian Ringgit
which was free floating prior to the crisis, depreciated over 40%
from RM2.50/US$ to an all time low of RM4.88/US$. The stock
market dropped by 68.58% in a week during the close of July 1997.
Real impacts of the crisis were only reflected in the
following year when GDP growth dropped to -7.4% in 1998, leading
Malaysia into a depression. This is reflected again in our data,
as the capital growth rate sinks to 4.02% while TFP growth rate
bottoms out at -10.31% the same year. Considering the importance
of the capital growth rate to GDP growth, 4.02% was well below
the average capital growth rate of 7.04% throughout our data
period. The depreciation in currency and the abandonment by
foreign ownership on the stock market aggravated the situation by
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raising the lending rate, making investments more expensive
resulting in a drop of 50.5% in private investment during the
year. The over capacity of investment in the manufacturing and
construction sectors during the boom of the early 90’s coupled
with the expected decreased consumption rate saw these sectors
get hit the worst during the year with a contraction of about 19%
and 30% respectively (Mahani).
As with other countries in the region struggling to fight
the economic pressures during this crisis, Malaysia adopted the
orthodox method of economic remedy. Mid-1997 saw tighter credit,
substantial government budget cuts of 20%, and increased short-
term rates to 11% intended to quell fears of jittery foreign
depositors and to stem the outflow of currency (Mahani). However,
these policies were not producing a satisfactory outcome and
instead of accepting aid from the IMF as other countries such as
Indonesia and Thailand were doing, Malaysia launched a whole new
recovery plan in July 1998 that was at the time considered to be
radical by traditional economic standards (Athukorala).
The New Economic Recovery Plan (NERP) was considered to be
against the grain of traditional economic practices because it
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called for control over capital accounts. Essentially, instead of
letting the markets correct themselves through the adjustment of
monetary and fiscal policies, Malaysia opted to close themselves
off from foreign flows of capital. This marks the first time in
history that an emerging market has closed capital accounts to
foreign markets (Athukorala). The defense behind embarking on
this new policy and refusing to participate in an IMF recovery
program was justified by the Tun Mahathir’s speech in which he
stated that the conditions the IMF would impose upon Malaysia
would require Bumiputera quotas erected in the NEP to be
abolished. Mahathir weighed the socio-economic costs and benefits
and decided to implement the NERP instead (Athukorala).
Through the 1998 NERP, Malaysia defended its currency by
pegging it to the Dollar at a rate of RM3.80/US$. Based on the
trilemma, or the impossible trinity, the fixed exchange rate came
at the cost of the closed capital movement. Independent monetary
policy was retained, and Bank Negara intervened through the NERP
to lower interest rates to ease the liquidity crunch that was
choking the private investment sector. By controlling short term
capital flows, the legal tender of the Ringgit was invalid
18
outside the country making foreign exchange trading with the
Ringgit costly to speculators who now have to buy back the
Ringgit at a higher price of RM3.80/US$. This helped to curb the
plunging equity market as well as assist in raising domestic
demand. Restrictions on portfolio financing required investors to
keep proceeds from asset sales in Ringgit for up to a year before
converting them into foreign currency (Mahani).
The result of the NERP saw an astounding recovery by the
very next year. In 1999, the GDP actually started growing in
March and by the year-end, had recorded a growth rate of 6.4%. A
stark contrast to the -7.4% growth attained in the previous year.
However, capital growth rates remained at a slower pace around
the 3-4% level post-crisis. Although the NERP was fixed to not
affect FDI or current account transactions directly, it deterred
foreign investors and rating agencies downgraded Malaysian
assets. The time period restrictions imposed on foreign currency
withdrawals made “greenfield investments less attractive”
(Charette).
By 2000, the capital controls were replaced by a tax exit,
and by 2001, it was abolished completely. However, capital growth
19
never returned to pre-crisis pace. One probable reason is that
Malaysia is a highly export dependent economy which exposes them
to risks in fluctuations of global demand. The 2000’s brought
with it the boom of electronics and fiercer competition for
outsourcing materials, this prompted the shift towards import
substitution.
Import substitution policies were subsidies heavily by the
government, allocating resources in areas that were inefficient.
Justification of the protectionism goes hand in hand with the NEP
policy of Bumiputera quotas, which staffed these inefficient
import substitution firms. The reluctance of eradicating these
uncompetitive industries stems from protest from the large
population of rural Malays and the Malay led UMNO party that
takes the majority of seats in the parliament.
Racial bias also perpetrates the qualitative development
progress, particularly in education. Public universities were
required by law to fill a hard quota of Bumiputeras and although
this policy was removed in 2003, the lack of transparency in the
public education system still carries the perceived notion that
less deserving Bumiputeras are admitted over non-Bumiputera.
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Those non-Bumiputera who have the funds to travel abroad for
their higher education do so and arguments have been made that
this contributes to the high levels of brain drain that Malaysia
is experiencing currently.
The lingering tension resulting in the NEP coupled with the
rapid interconnectivity of society through social media has
culminated in the racial polarization of both the Malaysian
community and its politics. In 2008, the first mass protest
against the government since Malaysia’s independence took place
to call for cleaner elections. Malaysia ranks as 56 in the 2010
Corruption Perceptions Index, and it is not uncommon to hear
politicians defending rights of their own race while demeaning
the rights of others. The political clash between races could
destabilize the country’s economic growth and development. The
brain drain problem and quality of education in Malaysia is
deterring the improvement of labor quality, subsequently making
it less competitive against other countries in the area that are
already attracting the foreign direct investment market.
In October 2008, a global financial crisis brought enormous
ramifications for the world economy, but Malaysia was lucky
21
enough to avoid a financial meltdown. The nation’s economy had
little exposure to the financial derivatives that emerged from
the sub-prime stocks, so the currency and capital markets were
insulated from any direct effects of the crisis. However, the
contraction in aggregate demand drove the nation’s economy into
recession. In the last quarter of 2008, Malaysia’s GDP growth
declined to 0.1%, and by the first two quarters of 2009, it
decelerated to -6.2% and -3.9% respectively. (Abidin)
These contractions in the Malaysian economy were mainly
caused by a collapse in exports, which greatly aggravated the
already cooling economy. Because the nation has a high export to
GDP ratio, the decline in external demand became a serious issue.
Sources from this contraction arose from the demand for exports,
particularly in manufacturing, quickly declining during the
recession because target markets for exports were primarily
developed countries such as the United States, who were greatly
affected by the global meltdown. Additionally, there was a
contraction in foreign direct investment inflows from these
developed countries. Because of this, manufacturing in the
country slowed down, and sectors that depended on GDP growth for
22
consumer and investment demand also collapsed; the falling demand
of exports drove firms to fire a significant number of workers.
The financial crisis provided Bank Negara with incentive to
regulate the financial sector without excessively affecting the
stock market. Due to the nation’s minimum exposure to foreign
loans, non-performing loans as a share of total loans fell to
2.2% and remained at this level throughout the first two quarters
of 2009; this was among the lowest rates for Asian economies
during the time. Such an achievement proved that Malaysia
remained to have strong economic fundamentals during the global
crisis. (Abidin)
Policy and Trade Developments
Malaysia has been a member of the United Nations since 1957
and is a founding member of the Association of Southeast Asian
Nations (“ASEAN”) and the Organization of Islamic Cooperation
(“OIC”). Additionally, Malaysia is a founding member of the World
Trade Organization (“WTO”) and through its membership and active
participation it strives to maintain trade regulations and
measures that will ensure flexibility for Malaysia’s development.
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Through ASEAN, Malaysia participates in the ASEAN Free Trade Area
(“AFTA”) and is thus engaged in trade negotiations with Japan,
India, Korea, China, Australia and New Zealand. As of today,
Malaysia has bilateral Free Trade Agreements (“FTA”) with
Pakistan, New Zealand, Chile, and Japan. Additionally, it is
currently in negotiations for the Trans-Pacific Partnership which
is a regional trade pact between the United States and countries
in the Pacific Rim. Malaysia is also pursuing free trade
negotiations with Singapore, Thailand, the European Union, and
Hong Kong. These trade negotiations are an important mechanism to
expanding Malaysia’s market reach and further its development.
Its relationships with many countries within and outside its
region have spurred its economic development through agreeable
terms of trade and mutually beneficial partnerships.
Malaysia has been highly successful in attracting foreign-
direct investment (“FDI”) with its largest benefactors being
China, India, Brazil and the United States. The Southeast Asian
country received RM46.1 billion FDI in just 2008, which accounted
for 73.4% of total investment in 2008, an all-time high for FDI
in the country. The country has also shifted its trade policy
24
away from supporting agricultural and industrial sectors to
promoting service-based sectors. This kind of shift is a typical
indication of a newly development economy as it moves away from
traditionally relying on a manufacturing base dependent on low-
cost labor to innovative and knowledge-based services. This marks
an important transition for Malaysia to compete successfully in
the international trade arena in the years ahead.
In 2011, Malaysia’s top five trading partners are China,
Singapore, Japan, the United States, and Hong Kong. Partnerships
with these countries are incredibly important as China, Singapore
and Japan each facilitate more than 10% of Malaysia’s total
trading volume. India and Brazil are noted to become important
trading partners as well in the years to 2020.
As mentioned in the introduction, Malaysia has set goals to
become a high income nation by 2020 by the Economic
Transformation Program (“ETP”). It is managed by the Performance
Management and Delivery Unit under the Prime Minister. It aims to
more than double GDP per capita from $6,700 in 2010 to $15,000 by
2020. In order to accomplish this goal, they need to grow at 6%
per year. Furthermore, 12 National Key Economic Areas (NKEAs)
25
have been determined to focus investments on in accordance with
the necessary growth. Around 92% of the funding for the
investments will come from the private sector, and companies such
as Shell Malaysia, Airasia, Exxon-Mobil, and Cisco are part of
the project.
The government has continued to commit its national economic
policy spearheaded by the Ministry of International Trade and
Industry (“MITI”) to expanding opportunities in new markets and
to support domestic industries. Malaysia’s open trade policies
relative to most of its regional peers minus Hong Kong and
Singapore have allowed it to accelerate its development in the
region. Going forward, Malaysia is expected to continue that
commitment and continue to seek free trade negotiations to
maintain its goal of becoming a high income economy that is
knowledge-driven and high technology and service industry-based.
Conclusion
Malaysia’s rapid economic growth was initiated by the
proposed Vision 2020 goal in 1990. Since then, Malaysia has
endured two crises – the 1997 Asian financial crisis, and the
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global financial crisis of 2008. But due to the strong policy
reforms implemented prior to the 1990s, Malaysia was not greatly
affected by these meltdowns and was able to weather these crises
with its strong macroeconomic fundamentals. However, these crises
widened the gap between the nation’s GDP growth and the rate
targeted for the achievement of Vision 2020.
Malaysia has been able to achieve great technical progress,
which has been a source of the nation’s TFP growth; due to their
technological innovation, their economy was able to shift in its
own frontier. Additionally, Malaysia’s rapid accumulation of
capital as well as increase in foreign-owned companies have
increased TFP growth and contributed to the rapid transformation
of the economy. Due to the upturn in the global economy in 2009,
Malaysia’s economy has continuously been improving, and today,
Malaysia is known for being one of the Tiger Club economies.
Malaysia’s successful economic policies have helped to
sustain the nation’s economic growth. But in a rapidly changing
environment, it is important for Malaysia to maintain strong
economic fundamentals and a vigorous financial sector in order
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Permandu eyes RM500b, 2.2m Jobs in NKEA Projects by 2020. Asrul
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