Program : Degree

Course : Malaysian Economy

Code : ECMB313

Credit Hours : 03

Contact Hours : 03

Semester : Semester 1 Academic Year 2012/2013

Subject Synopsis

This course provides the student with an overview of the Malaysian economy - the role of the government and its economic interaction with other countries in the region. Topics such as government economic plans and policies, income distribution and poverty eradication, labour force and labour relations, the financial system and international trade and investment will be covered in this course.

Learning Outcomes

At the end of this course, students are expected to:

1. Critically analyse the Malaysian economy and its components.

2. Apprehend the economic development of the nation thus far.

3. Apprehend fundamental economic analysis provided by the media.

4. Rationally analyse the macro economy environment and the external factors in business decision-makings.

5. Assess, analyze and suggest appropriately methods on economy crisis.

6. Rationally analyse the implication of macro economy environment, current issues and implications of the current policies.

Sunday, May 27, 2012

1:Introduction to Malaysian Economy


EG is the increase in a country’s national income, or sometimes its per capita national income. The ability of an economy to produce a greater level of outputs.

‘The steady process by which the productive capacity of the economic is increased over time to bring about rising levels of national income."

“If the country wants to achieve economic development , there must be an ability to maintain economy growth at the rate . 5%-7%”. Todaro (1985)


Economic development is a broad and comprehensive concept. Changes in the social and economic equalisation, employment, education, current needs of society

It has both quantitative and qualitative dimensions as it involves much more than economic growth. The process of improving the quality of all human live.


Socio-economic change means all citizen have equal opportunities in education, health, good and increase in social amenities for housing, health, water and electricity

Technological change means that there must be an innovation, the development of research and technology in the production of output and services

• Sectorial analysis

Economic status during independence

• Malaysian economy predominantly based on primary sector. It consists of agriculture and mining.
• 45.7% of GDP and 61.3% of employment.
• Rubber cultivation, limited palm oil plantation, rice cultivation, fishery and forestry activities.

• The secondary sector consists of some light manufacturing, building and construction. 11.1 % of GDP and 9.6% of employment.
• Repair of plantation and mining equipment and processing of agricultural produce.

• The tertiary sector based on trade and services.
• Exports exceed 50% GDP.
• Services contributes 11.1% of GDP
• A rate of population increase. Unemployment rate increases from 2% in1957 to 7 % in 1967 and 8% in 1970.

• Uneven distribution of income
• To increase more Malays into commerce and industries, incorporated Rural and Industrial Development Authority (RIDA).

• A low level of human resource development which resulted in a shortage of many skills required for development to take place.

Economic status during 1960s-1980s

• 1960s still heavily dependent on agriculture sector but did not provide enough growth impetus for overall economy.

• 1970s implementation of import substitution and export-oriented industrialization. An increasing degree of sectoral interlinkages and greater integration and strengthening of linkages within the economy.

• Manufacturing sector growth average 10.3% per annum during 1970-90, and 10.5% per year during 1991-1998. Agriculture decelerates in growth rate from 5% per annum in 1970s to 0.8% in 1990s.

• Manufacturing grew at an average of 7.7% between 1971 and 1998. The share of employment contribution increased from 9.1% in 1968 to 15.8% in 1980. It grew 8.6 % per annum between 1990 to 1998.
• The manufacturing sectors were electrical & electronic machinery and appliances, transport equipment, rubber, plastic, paper & wood industries.

• The quest for industrialization affected the country’s external trade pattern. Rubber, tin, sawn logs and timber accounted for 68% of total gross exports in 1960, but in 1980, it reduced to 32%. Manufactured products accounted for 17% in 1960, but increased to more than 27% in 1980.

Economic status during 1990s

• 1985, first Industrial Master Plan

• 1996, second Industrial master Plan

• Feature- shift of industrial focus from an investment driven economy (70s & 80s) to productivity driven economy (90s).

• Total factor productivity increased from 1.2% during 1970-90 to 2.5% during 1991-1995.

• 1997-98, financial crisis. Output contracted by 10.2% in 1998. The main reasons were the weak demand from the Asia-Pacific region and the depressed global market for semiconductors.

• In 1998, the agriculture sector declined by 4%. Reasons, lower external demand, labor shortages, unfavorable prices, reduced cultivated area and lower use.

• Sharp decline in prices and volume of shares traded on KLSE.

• The consumer price index peaked at 6.2 % and the producer price index peaked at 10.7 in 1998.

• Employment declined by 3% compared to a positive growth of 4.9% in 1996.

• Real aggregate consumption decline by 10.3%

• Gross national saving rose by 5.1%; constituted 41.2% of GNP. Gross domestic capital formation declining by 38.4%. Thus, the savings-investment gap turned around to register a record surplus of RM36.1 billion or 13.7 % of GNP.

• External debt declined by 6.4% to RM159.8billion in 1998. This decline was due to the reduction in short-term debt by 34% to RM28.5%.

• Overview of Malaysia’s Economic growth


1960-1969 6.4%
1970-1979 7.7%
1980-1987 2.0%
1988-1989 7.4%
1990-1995 8.5%
1996-2000 7.0%
2001-2005 7.5%

• ASEAN economy

The Association of Southeast Asian Nations is a geo-political and economic organization of 10 countries located in Southeast Asia, which was formed on 8 August 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand. Since then, membership has expanded to include Brunei, Burma (Myanmar), Cambodia, Laos, and Vietnam.

Its aims include the acceleration of economic growth, social progress, cultural development among its members, the protection of the peace and stability of the region, and to provide opportunities for member countries to discuss differences peacefully.
Economic Community

ASEAN has emphasized regional cooperation in the “three pillars” of security, sociocultural and economic integration. The regional grouping has made the most progress in economic integration, aiming to create an ASEAN Economic Community (AEC) by 2015. The AEC would have a combined population of over 560 million and total trade exceeding US$ 1,400 billion.

Free Trade Area
The foundation of the AEC is the ASEAN Free Trade Area (AFTA), a common external preferential tariff scheme to promote the free flow of goods within ASEANThe ASEAN Free Trade Area (AFTA) is an agreement by the member nations of ASEAN concerning local manufacturing in all ASEAN countries.
The AFTA agreement was signed on 28 January 1992 in Singapore.

When the AFTA agreement was originally signed, ASEAN had six members, namely, Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand. Vietnam joined in 1995, Laos and Myanmar in 1997, and Cambodia in 1999.

The latecomers have not fully met the AFTA's obligations, but they are officially considered part of the AFTA as they were required to sign the agreement upon entry into ASEAN, and were given longer time frames in which to meet AFTA's tariff reduction obligations.

Comprehensive Investment Area
The ASEAN Comprehensive Investment Area (ACIA) will encourage the free flow of investment within ASEAN. The main principles of the ACIA are as follows
• All industries are to be opened up for investment, with exclusions to be phased out according to schedules
• National treatment is granted immediately to ASEAN investors with few exclusions
• Elimination of investment impediments
• Streamlining of investment process and procedures
• Enhancing transparency
• Undertaking investment facilitation measures

Full realization of the ACIA with the removal of temporary exclusion lists in manufacturing agriculture, fisheries, forestry and mining is scheduled by 2010 for most ASEAN members and by 2015 for the CLMV (Cambodia, Lao PDR, Myanmar, and Vietnam) countries.

Trade in Services
An ASEAN Framework Agreement on Trade in Services was adopted at the ASEAN Summit in Bangkok in December 1995. Under AFAS, ASEAN Member States enter into successive rounds of negotiations to liberalise trade in services with the aim of submitting increasingly higher levels of commitments.
The negotiations result in commitments that are set forth in schedules of specific commitments annexed to the Framework Agreement. These schedules are often referred to as packages of services commitments. At present, ASEAN has concluded seven packages of commitments under AFAS.

Single Aviation Market
The ASEAN Single Aviation Market (SAM), proposed by the ASEAN Air Transport Working Group, supported by the ASEAN Senior Transport Officials Meeting, and endorsed by the ASEAN Transport Ministers, will introduce an open-sky arrangement to the region by 2015.

The ASEAN SAM will be expected to fully liberalize air travel between its member states, allowing ASEAN to directly benefit from the growth in air travel around the world, and also freeing up tourism, trade, investment and services flows between member states.

Beginning 1 December 2008, restrictions on the third and fourth freedoms of the air between capital cities of member states for air passengers services will be removed, while from 1 January 2009, there will be full liberalization of air freight services in the region, while By 1 January 2011, there will be liberalization of fifth freedom traffic rights between all capital cities.
Free Trade Agreements With Other Countries

ASEAN has concluded free trade agreements with China, Korea, Japan, Australia and New Zealand In addition, it is currently negotiating free trade agreement with India (conclusion expected in April 2009) and with the European Union. Taiwan has also expressed interest in an agreement with ASEAN but needs to overcome diplomatic objections from China

ASEAN Charter
On 15 December 2008 the members of ASEAN met in the Indonesian capital of Jakarta to launch a charter, signed in November 2007, with the aim of moving closer to "an EU-style community" The charter turns ASEAN into a legal entity and aims to create a single free-trade area for the region encompassing 500 million people.

President of Indonesia Susilo Bambang Yudhoyono stated that "This is a momentous development when ASEAN is consolidating, integrating and transforming itself into a community.

It is achieved while ASEAN seeks a more vigorous role in Asian and global affairs at a time when the international system is experiencing a seismic shift," he added, referring to climate change and economic upheaval. Southeast Asia is no longer the bitterly divided, war-torn region it was in the 1960s and 1970s." The charter's aims included:
1. "Respect for the independence, sovereignty and territorial integrity of member states".
2. "Peaceful settlement of disputes".
3. "Non-interference in member states internal affairs".
4. "Right to live without external interference".

However, the ongoing global financial crisis was stated as being a threat to the goals envisioned by the charter, and also set forth the idea of a proposed human rights body to be discussed at a future summit in February 2009.

This proposition caused controversy, as the body would not have the power to impose sanctions or punish countries who violate citizens' rights and would therefore be limited in effectiveness.

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