Loans and industrialisation in Malaysia

Abstract

Malaysia is arguably one of best resource rich Asian examples of late industrialization efforts. With Thailand and Indonesia, until the financial crisis Malaysia is arguably one of best resource rich Asian examples of late struck in mid-1997, it was hailed as having better replicative attributes than the Northeast Asian economies by the World Bank (1993). The rapid growth that lasted since 1987 has been explained by liberalization. Manufacturing output, employment and exports grew sharply in the period. The sector which had initially overtaken agriculture to become the leading value added generator in GDP in 1984, expanded its share in GDP to 34 percent in 1996 making it one of the most industrialized economies in the world. Manufacturing exports in overall exports grew to almost 80 percent in 1996. This paper attempts to examine the structure of loans in the growth of manufacturing. The analysis looks at both inter-sectoral and intra-sectoral flow of loans. It does not, however, undertake to establish an exhaustive relationship between loans and industrial structural change. Such an assessment would require an analysis of the relationship between the regulatory framework on loans, controlling for other effects, on the performance of manufacturing firms, which is not possible due to data constraints.