Structural change and industrial development: the Malaysian experience

Abstract

Malaysia's economic development over the last three decades is characterised by rapid industrialization with rapid economic growth and price stability. At the time of independence in 1957, Malaysia was close to the archetypical single crop economy based on mainly rubber and tin. Indeed, Malaysia was then dependent upon on the two primary products for 70 percent. of total export earnings, 28 percent of government revenue and 36 percent of total employment. However, the economy during the last thirty years became increasingly diversified and outward-looking. By 1990, the nation's dependence of rubber and tin had declined to 4.9 percent of total exports and 13.6 percent of government revenue as the export of the manufacturing industries became increasingly important. The evolution of the Malaysian economy also had a significant impact upon on the structure of employment. In 1960, the primary sector of agriculture and mining provided 59 percent of total employment but its share declined to 30.4 percent by 1990. Conversely, the manufacturing sector had become an increasingly important source of employment by raising its share of total employment from a mere 9 percent in 1960 to 17.7 percent by 1990. The pattern of trade has also changed over the past 30 years as the industrial development progressed. This is evident in the changes in the import structure. In the 1960s, imports comprised mainly food and manufactured consumption goods but their imports declined substantially in the 1970s, following implementation of import-substitution policy in the earlier period. In the 1980s, imports of capital goods also became increasingly important for the drastic surge in direct foreign investment towards the end of 1980s. As a consequence, electronics, textiles, and local assembly became major components in both export and import activities. The rapid structural change of the Malaysian economy has also been accompanied by the substantially expanded role of the government, especially in the 1970s to achieve the NEP objectives as well as the big push into heavy industries. For example, the share of the public sector in total domestic demand increased significantly from 18 percent in 1960 to a peak of 34 percent in 1982.