Abstract
The chapter examines how Malaysia has responded to global challenges through product and market diversification, investment promotion and trade strategies. The chapter begins with a historical overview of the Malaysian economy since Independence. It then profiles the FDI-trade nexus that generated supply chain linkages and reviews the industrial policy drive since the 1990s. Then follows an in-depth examination of Malaysia’s regional links through the trade and investment patterns with the Association of Southeast Asian Nations (ASEAN) and a review of its global position based on several performance-based rankings. The chapter concludes with suggestions for a reframing of the industrial policy with a focus on the firm and identifies some thorny issues that need to be addressed by the state.
The research leading to these results has received funding from the European Union H2020 Framework Programme CP-2016-under grant agreement no. 770562 (IF002AB-2018).
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Notes
- 1.
The earlier phases of the industrial policies in Malaysia, namely the export-oriented industrialization drive in the early 1970s, a second round of import-substituting industrialization in the early 1980s and a second round of export push in the late 1980s, have been well documented in the literature. Therefore, this chapter is confined to the shift towards market-oriented policies since the 1990s.
- 2.
The NEP (1971–1990) was a social re-engineering and affirmative action programme.
- 3.
The ‘Look East Policy’—to emulate Japan, South Korea and Taiwan—was the brainchild of Mahathir during his premiership (1981–2001) and is now reignited under his 2018 premiership.
- 4.
Multinational enterprises (MNEs) account for over 80 per cent of manufacturing exports (65 per cent of total exports) (Athukorala and Wagle 2011).
- 5.
Approximately 40 per cent of jobs in Malaysia are created in export-related activities (MITI 2017).
- 6.
Negative deindustrialization refers to the shift into services without having gone through a proper experience of industrialization. In short, it represents unsuccessful manufacturing.
- 7.
The “middle-income trap” is the situation in which rapidly growing economies stagnate at middle-income levels and fail to graduate into the ranks of high-income countries.
- 8.
There are 22 FIZs, 18 free commercial zones (FCZs) and more than 500 IEs in Malaysia as of December 2016 (see ASEAN Secretariat 2017).
- 9.
Malaysia has been a frontrunner in the region in advancing FIZs since the 1970s, whereby incentives such as pioneer status, labour utilization relief, investment tax credits, accelerated depreciation allowances and export refinancing facilities are granted to foreign-owned companies that are operating in FIZs (Zainal and Bhattasali 2008).
- 10.
Economic corridors are large economic areas involving a number of contiguous states or provinces. Their development draws on the sectoral and geographical strengths of the constituent areas to support economic clusters and benefit from economies of scale (ASEAN Secretariat 2017).
- 11.
NTMs are defined as policy measures other than ordinary customs tariffs that can potentially have an economic effect on international trade in goods, changing quantities traded or prices or both.
- 12.
SPS refers to measures to protect human, animal and plant life, while technical measures are imposed to fulfil policy objectives such as national security requirements; prevention of deceptive practices; protection of human safety; protection of the environment; quality matters; and the protection of human, animal or plant life or health (other than for SPS reasons).
- 13.
The NCER, which includes the state of Penang and the successful Penang FIZ, is at a relatively advanced stage in implementation (Athukorala and Narayanan 2018) relative to the other economic corridors.
- 14.
The IGA between Malaysia and ASEAN came into force on 29 February 1989. For a list of Malaysia’s signed and in force IGAs, see http://www.miti.gov.my/index.php/pages/view/771.
- 15.
ASEAN is a pioneer in regional FTAs in East Asia by establishing its internal FTA (ASEAN FTA or AFTA) and ASEAN+1 FTAs (with China, Korea, Japan, Australia-New Zealand and India; see Table 5.2).
- 16.
The supply (and not the demand) part of the networks is regionally concentrated, as the ASEAN trade is largely dependent on extra-regional demand.
- 17.
The centre of the regional production network shifted from the US and Japan to China in mid-2000s.
- 18.
The long-standing ruling party of the United Malays National Organization (UMNO) since Independence in 1957 until its recent defeat in May 2018 has led to cronyism and a degree of corruption in the bureaucracy.
- 19.
At the time of writing, the current ruling party known as Pakatan Harapan (the opposition) that defeated the long-standing Barisan Nasional coalition in 2018 is in the process of removing all political appointees at GLCs and GLICs.
- 20.
The distance to the frontier is on a scale of 0–100, where 0 represents the lowest performance and 100 represents the frontier.
- 21.
See Tan (2014) for a detailed account of the adverse effects of Malaysian industrialization from national accumulation strategies, driven by internal factors related to changes in domestic class formations and reinforced by broader changes in global accumulation processes. These policies are, however, beyond the scope of this chapter.
- 22.
The manufacturing sector should not be neglected on grounds that the economy is undergoing a process of deindustrialization, as misconstrued by those who advocate for emphasis on services-led growth at the expanse of manufacturing.
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Devadason, E.S. (2019). Malaysia: Trade, Foreign Direct Investment and Regional Integration. In: Macdonald, R. (eds) Southeast Asia and the ASEAN Economic Community. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-19722-3_5
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