Malaysian Economic Development: Looking Backwards and Forward

Hal Hill

Departmental Working Papers from The Australian National University, Arndt-Corden Department of Economics

Abstract: This paper provides an analytical and forward-looking overview of Malaysian economic development. Looking back over its 53 years of Independence, we identify the key stylized facts to include the country's generally rapid economic growth and structural change; its consistent openness, especially for merchandize trade and foreign direct investment; its creditable record of macroeconomic management; its consistently high inequality, in spite of the developing world's most consistently implemented affirmative action program; and its mixed record with regard to institutional development. Looking forward, the government has identified the country's key development challenge as graduating to developed country status from its current upper middle income developing country ranking. Can Malaysia make this transition? Growth rates and especially investment levels have fallen substantially since the Asian financial crisis. We identify three key, interrelated challenges, which will be key determinants of its upgrading efforts: fiscal policy reform; the development of institutions and incentives that underpin more rapid innovation and technological progress; and a complete overhaul of affirmative action programs so that they become well targeted social policy instruments.

Keywords: Malaysia; ASEAN economies; upgrading; middle-income trap (search for similar items in EconPapers)
JEL-codes: N15 O30 O53 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2010
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