1 - The Economy of Malaysia: Present, Problems, Prospects

Summary

Introduction

The economic development of Malaysia since 1957, by all accounts, has been a spectacular trajectory of restructuring and of rapid economic growth, punctuated only by the Asian Financial Crisis in 1997, and by the economic crisis in 2008. Malaysia has also been able to graduate from a predominantly agricultural base to that of a manufacturing and services base through prudent economic management, balancing economic efficiency considerations with that of the redistribution of the economic pie. In recent years, however, the government has come to realize that the traditional approach of restructuring and diversifying the economy may not be sufficient to propel Malaysia to the level of other high-income nations. Furthermore, the historical engines of agriculture and manufecturing that have been driving Malaysia's economic growth has been losing its momentum over the past decade. Part of the slowing momentum is largely due to the fall in private investments: from 25 per cent of GDP throughout the 1990s to about 10 per cent in the past decade.

The Tenth Malaysian Plan (2011–15) succinctly outlines what needs to be undertaken for Malaysia:

[the] challenge is to move from an economy that competes on cost and natural resources, to an economy that is driven by productivity, innovation and that is able to nurture, attract and retain talent, companies and capital. In order to move into the league of high income economies, Malaysia will also need to move from a strategy of diversification of the economic base, which successfully elevated the nation to a middle-income economy, to a strategy which focuses on specialisation in a few selected economic sectors and geographies where Malaysia has a relative competitive advantage.

Can Malaysia transform its economy up to the level of other high income countries? How has Malaysia landed in its present dilemma of the middle income trap? What are some of the challenges that need to be overcome that will move the country to join the ranks of a high-income and developed country? What are some of the suggested policies that can bring Malaysia to the next stage of development?

A number of recent works have been undertaken on the Malaysian economy.