The Medium Run: Costs and International Competitiveness
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Section 1 briefly reviews the phases of Malaysia’s development strategy in relation to international trade. Malaysia’s competitive edge on the world market is determined by Malaysian costs relative to those of competitors. Section 2 therefore looks at the recent evolution of Malaysia’s international competitiveness in terms of comparative unit costs. But there are many reasons to believe that costs incurred by producers may provide misleading signals with respect to the true comparative advantage of a nation: competitive edge and comparative advantage are generally not identical. Section 3 takes up this issue in the Malaysian context, to ask which elements of cost may have been particularly misleading. This serves as background to Section 4 which considers implications for Malaysia’s development strategy, mechanisms for exploiting comparative advantage, and possible reasons for wanting to depart from this path.
KeywordsExchange Rate Labour Cost Real Interest Rate International Competitiveness Unit Labour Cost
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