Is Malaysia Facing Negative De-Industrialization?

Abstract

This paper seeks to examine whether Malaysia is facing negative de-industrialization by examining value-added, trade, and productivity trends over the period 1990-2005. The evidence produced in the paper is concrete enough to confirm that Malaysia is facing negative de-industrialization. While it is typical, as part of the process of structural change, to see a rise and fall in the share occupied by manufacturing in the GDP, the evidence shows that Malaysia is indeed facing premature de-industrialization, with a trend slowdown in manufacturing value-added, trade performance, and productivity since 2000. Not only has the trade performance of manufacturing been falling, manufacturing labor productivity has also slowed down; with the key sectors, such as electric-electronics, textiles, and transport equipment; showing either negative or low productivity growth since 2000. Malaysian industrial policies have been fairly successful in connecting with the global value chains of multinationals and in developing resource-based industries, but have not achieved the same success in stimulating their transformation to high value-added activities. The lack of effective institutional change, partly explained by ethnic policies, is advanced as the prime reason for the setting in of negative de-industrialization in Malaysia.

Keywords: Malaysia, manufacturing, trade, productivity, de-industrialization