Industrial Deepening in Malaysia: Policy Lessons for Developing Countries

Abstract

The Malaysian economy has undergone substantial industrial transformation, shifting from primary commodity production to manufacturing in slightly more than 5 decades since achieving independence. However, efforts to deepen manufacturing development have not succeeded in nurturing a critical mass of domestic entrepreneurs with indigenous innovative capacities as industrialization continues to be dependent on imported technology and capital. Instead, the manufacturing sector is facing premature deindustrialization. In view of these developments, this study aims to assess the extent of industrial deepening in a country through the development of linkages, as well as the key factors that have contributed to this. This has important policy lessons for other developing countries that are following similar export-oriented, foreign direct investment-led strategies for their industrial development. The main findings of this study indicate that while trade and investment policies have contributed to the development of the manufacturing sector, they have also fostered closer integration with the rest of the world rather than within the domestic economy. The electrical and electronics subsector has relatively weaker backward linkages than other subsectors in the economy. Deepening internal integration requires complementary labor, human capital, and technology policies that can facilitate the development of linkages in the manufacturing sector.

Emerging States at Crossroads

“…This is because they have no incentives due to their short-term employment contracts and their unstable working status. As a result, the Malaysian government froze new employment of foreign workers in 2009, when the number of foreign workers totaled 2.3 million, and set a policy to reduce it to 1.5 million by 2015 (Tham and Loke 2011).…”

Trend Behavior of Malaysia Consumer Price Index: Evidence from National Database (2003–2022)

“…In fact, Malaysia is a country that generally embraced globalization for the purpose to drive economic growth and development (Budhwar & Fadzil 2000). In a similar vein, Malaysia also has actively pursued policies to liberalize trade, attract foreign investment, and integrate into global supply chains (Arudchelvan & Wignaraja 2016;Tham & Loke 2011) that actively welcomes friendly and fair policy (Hj Ridzuan et al 2021). Therefore, many textile and telecommunications industries have expanded their business in Malaysia.…”