Change in Malaysian Economy



Since gaining independence in 1957, Malaysia has successfully separated its economy from its original agricultural and commodity economy, to what is now a powerful manufacturing and services industry, making the country a leading supplier of electrical appliances, parts, and components.


Malaysia is one of the world’s most open economies with an estimated GDP of more than 130% since 2010. Trade and investment openness has had a significant impact on job creation and income growth, with approximately 40% of Malaysia-linked jobs exporting jobs. After the Asian financial crisis of 1997-1998, the Malaysian economy was on track, with an average growth rate of 5.4% since 2010, and is expected to reach its transition from the upper middle economy to the highest income by 2024.


However, the COVID-19 (coronavirus) epidemic has had a profound impact on the economy in Malaysia, especially in vulnerable households. After reviewing their national poverty line in July 2020, 5.6% of Malaysian households currently live in extreme poverty. Government is focused on addressing the welfare of the poorest 40% (“under 40”). This low-income group remains at high risk of economic downturn and rising living costs and rising financial obligations.


Malaysia’s income inequality remains very high compared to other East Asian countries but it is slowly declining. While the income growth of the 40 lowers has exceeded the top 60 in most of the past decade, the overall gap in income groups has widened, contributing to the broader perceptions of the poorest poor. Following the release of the broader subsidy, Government has gradually moved towards specific goals of subsidizing the poor and vulnerable, especially through the transfer of low-income households.


Malaysia’s immediate economic situation will depend more than usual on government measures to stabilize the operations of the private sector as the shock of COVID-19 slows export-led growth, and as the downturn finances limit the expansion driven by public investment. In the long run, as Malaysia joins high-income economies, growing growth will depend less on accumulation and more on productivity growth to maximize potential high growth. While important, Malaysian production growth over the past 25 years has been lower than those of a few global and regional competitors. Ongoing reform efforts to address the key challenges of its construction will be essential to support and sustain Malaysia’s development path.


According to the World Bank’s Human Capital Index, Malaysia is ranked 55th out of 157 countries. To fully realize human potential and to fulfill the country’s dream of a prosperous and prosperous state, Malaysia will need to advance education, health and food security, and the consequences of social protection. Key priorities include raising the level of learning to improve learning outcomes, rethinking nutritional interventions to reduce child disability, and providing adequate social protection to home investment in building human capital.



Change to Trends

Trade activity in Malaysia continued to grow in August 2021 with trade increasing by 15.7 percent from RM146.7 billion in August 2020 to RM169.8 billion. Exports registered for faster growth than imports, an increase of 18.4 percent to RM95.6 billion compared to August 2020. This was the twelfth consecutive month of annual increase (yoy) since September 2020. Imports increased by 12.5. to RM74.2 billion and trade surplus increased by 44.7 percent to RM21.4 billion.


Compared to July 2021, total trade, exports and imports received 6.1 percent, 1.8 percent and 11.2 percent, respectively. Meanwhile the trading balance has grown by 55.5 percent.


Trade openness has become one of the latest trends especially in the emerging market economy which is encouraged to improve its economic progress. The legitimacy of trade openness for economic growth has been discussed repeatedly in the literature. The result of trade openness is


It has been studied in many of the available art subjects. Some studies suggest a positive effect of trade openness on economic growth (Dollar, 1992; Edwards, 1998; Sachs & Warner, 1995). Some suggest small but positive effects of trade openness on economic growth (Lee, Ricci, & Rogobon, 2004). The story of East Asia’s economic success provides further support to the idea that business openness contributes to economic growth despite the other growth factors discussed in this economy (World Bank, 1993, 2003). In addition, recent major changes in China’s trade deficit show that trade-open economies are more productive than those that only generate domestic consumption outside the economy. According to Arrow (1962) international trade can bring more research and development (R&D) and learning to do so is important for product development and therefore economic growth. In addition to trade openness, technological advances and human construction are also considered signs of economic growth (Borensztein, De Gregorio, & Lee, 1998; Solow, 1956). The study begins by noting that although trade openness is considered one of the determining factors in economic growth, its impact varies greatly from economy to economy and depends on the strength of the economy and sound economic policies.


At the beginning of the twentieth century, many developing economies such as Malaysia were heavily controlled and economically protected by industrial laws and highly regulated imports. However, as global trade policy changed from imports to export promotion strategies in the 1980s, barriers to trade and investment in Malaysia decreased in relation to other regional economies other than Singapore and Hong Kong. These policy changes have enabled Malaysia to respond positively to the growing opportunities arising from global trade expansion. However, this general view does not indicate that everything is fine with trade in Malaysia. The current account balance, which stood at about 16.8 per cent of total gross domestic product (GDP) in 2008, declined to 3.4% of GDP in 2013. Growth engine has changed dramatically from more imported production to domestic services since the global financial crisis in 2008. However, Malaysia continues its policies of freed labor to increase productivity, investment and the spread of technology for more export industries. Removal of restrictions on foreign currency participation in the service sector, relaxation of foreign exchange policies, downgrading of FDI computers especially in export industries and rescuing cultural funds are proof that they have been a key factor in export growth during this period. Several studies have been conducted to evaluate the effects of trade openness or growth in Malaysia (see Sarkar, 2008; Yanikkaya, 2003); however, twenty years are considered the most important to achieve technological and structural change. Trade policies were also reviewed and reviewed. These changes in Malaysia's openness and local economy make it a timely study to test trade openness and economic growth. There are two additional reasons for conducting the current study. First, with the exception of certain studies (Eaton & Kortum, 1996; Edwards, 1998; Rodriguez & Rodrik, 2000) on trade and economic growth, many studies are challenged on flexible choices because they only choose trade openness when trade opens only may not promote economic growth (Rodriguez & Rodrik , 2000).


The need to present the key to growth is also emphasized in Bosworth and Collins (2003). This study takes this concern seriously and seeks to overcome this by introducing a more flexible approach namely human finance and a rigorous economic policy review with a co-operative term alongside open trade openings. Human stocks measure the ability to absorb emerging economies (Nelson & Phelps, 1966). Therefore, the benefits of open trade through technological know-how, research and development and the study of new ideas require an adequate level of human capital in order for the beneficial effects of trade openness to be fully utilized. Similarly, sound economic policies are important when the economy is open to international trade and aims to see a possible increase in revenue from trade (Bolaky & Freund, 2004). Second, although research on trade growth and economic growth has grown (Ahmed & Anoruo, 2000; Barlow, 2006; Chatterji, Mohan, & Dastidar, 2013; Hye, 2012; Jawaid, 2014; Wacziarg & Welch, 2010), the focus was on economic groups and regions. . While this view may be due to the lack of adequate annual data, there is no such problem in Malaysia. Moreover, in short courses, it is difficult to quantify from across the economy over time what happens to each economy over time. Time series analysis overcomes this problem with different economic strategies, providing confidence and a solid basis for a common economic policy decision. Motivated by these structures and the implications of policy, this study aims to assess the impact of trade openness on product growth in Malaysia. Using the LSE-Hendry general strategy (GETS) and revised data for the period 1980-2013, this study highlights the long-term limitations of trade openness and two other factors in product growth.