Trade flows: maintaining Malaysia's competitiveness

Abstract

Since the recession in the middle of 1980s, exports have achieved a high rate of growth and have been instrumental in producing the rapid economic expansion enjoyed by Malaysia prior to the East Asian economic and financial crisis. Export surplus has allowed Malaysia to be in a relatively stronger financial position when it entered the crisis in 1997. In addition, the expansion of export industries has created large employment opportunities, which created labour shortages and finally, the labour market became tight. The key component of Malaysian exports is manufactured products and their growth has been phenomenal and now they drive the direction of Malaysian external trade. Although primary commodity exports have a smaller share in total exports, they also played an important role because their significant contribution during the crisis has helped counter the effects of the contraction of manufactured exports. Exports also played an equally important role in the recovery process. Export growth has sustained domestic economic activities, capped the level of unemployment and increased international reserves through export surplus. As the domestic economy contracted during the crisis, exports became the source of growth as the weak domestic demand stalled most investments. Export proceeds were also channeled into the domestic economy to provide liquidity and to sustain domestic consumption. The strong export expansion in 1999 has absorbed excess capacity in export industries and ultimately new investment will be made to meet growing demand, which will accelerate growth.