Knowledge Deepening and
Industrial Change in Malaysia
Shahid Yusuf and Kaoru Nabeshima
DRG
February 26, 2008
Recent Performance and Prospects
• Growth during 2000-2007 has slowed averaging 5.0%
per annum as against 7.3% during the 1990s.
• The growth of TFP averaged 1.3 percent per annum
during 2000-2005.
• Rate of saving was 36% of GDP in 2006 but
investment rate had declined to 19%.
• Population/workforce is growing at about 2% per
annum (not including migrants).
• Policy questions: Can Malaysia achieve higher growth
in the 6+% range? If so, which industrial sector(s)
(including services) could serve as the main engines
of growth?
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Growth Rates in East Asia
12.0
10.0
8.0
1995
6.0
2000
2006
4.0
2.0
0.0
Sources of Growth
• In early 1990s, investment was mainly
responsible for growth.
• Since mid 1990s, the contribution of investment
to growth declined considerably, the slack taken
up by exports (latter half of 1990s) and by
consumption (early 2000s).
• Growth of services has replaced manufacturing
as the main source of growth since 2000.
Long-run GDP Growth:
Historical Cross-Country Experience
• Using Maddison’s data, the long-run
growth rate of per capita GDP in Malaysia
is 4.0% since 1960 (2.9% if the series is
extended back to 1911). Adding the
population growth rate of 1%-2% could
yield average aggregate future GDP
growth rates of 5-6%.
“Catch-Up” Model
• A “catch-up” model in which developing
countries’ growth rates are a function of
the difference in income relative to the
United States, predicts average growth
rates for Malaysia ranging from 4.5% to
6.7% depending on the sample of
countries included.
Long-Run Growth Rates
Average Growth Rates (GDP per capita), 1870-2003
Economy
Germany
Sweden
United Kingdom
United States
Japan
Korea a
Taiwan (China) b
Malaysia a
Note: a Data starts from 1911.
Source: Maddison 2006
Entire Period
1.8%
1.9%
1.4%
1.9%
2.5%
3.2%
3.5%
2.9%
b
Data starts from 1912.
Sub-Period (1960-2003)
2.2%
2.2%
2.2%
2.2%
4.1%
5.8%
5.6%
4.0%
Potential and Long-Run Growth
• For Malaysia, 6% per annum seems to be
an attainable growth rate.
• Faster growth can be achieved, but
requires improvements in productivity,
increased R&D and higher levels of
investment by private sector which will
promote embodied technical progress.
Is Malaysian Industry shifting towards
higher tech, higher value adding
activities?
•
•
•
•
•
•
•
•
Trends in Exports
Trends in Imports
Foreign Direct Investment
Domestic Investments
New Starts and Growth of Existing Firms
Industrial Location
Finance
Innovation Capabilities
Export Composition
0
20000 40000 60000 80000
Exports of Malaysia, by Type of Manufacture
1995
2000
year
Primary Products
Other, Resource-Based
Other, Low-Technology
Process
Electronic & Electrical
2005
Agro-Based
Textile, garment & footwear
Automotive
Engineering
Other, High-Technology
Export Composition
(excluding Electronics)
Exports of Malaysia, by Type of Manufacture
0
100001500020000
5000
without Electronic & Electrical
1995
2000
year
Primary Products
Other, Resource-Based
Other, Low-Technology
Process
Other, High-Technology
2005
Agro-Based
Textile, garment & footwear
Automotive
Engineering
Revealed Comparative Advantage
• Malaysia’s strength is in medium-tech
resource-based products .
• By comparison, products with highest RCA for
Korea shifted from resource-based products in
1995 to medium-tech products including ships,
chemicals and electronic products in 2005.
• The highest RCA for Singapore is more solidly
in high-tech electronic products and chemical
compounds .
Top 10 Commodities with Highest
RCA in Malaysia: 1995
Top 10 Commodities with highest RCA in Malaysia, 1995
Product
440332
440331
151329
851931
440333
151190
440721
851921
261220
851939
Product Name
White Lauan, White Meranti, White S
Dark Red Meranti, Light Red Meranti
Palm kernel or babassu oil (excl. c
Turntables with automatic record ch
Keruing, Ramin, Kapur, Teak, Jongko
Palm oil (excl. crude) and liquid f
Specified tropical woods (Meranti,
Record-players without loudspeaker,
Thorium ores and concentrates
Turntables, nes
Source: UN Comtrade
RCA
57.03
56.07
52.65
50.91
50.27
48.68
45.86
44.03
40.78
38.43
PRODY
2,287
2,287
4,661
15,997
2,287
4,635
3,667
15,997
13,865
15,997
Technology
Class
RB1
RB1
RB1
MT3
RB1
RB1
RB1
MT3
RB2
MT3
Top 10 Commodities with Highest
RCA in Malaysia: 2005
Top 10 Commodities with highest RCA in Malaysia, 2005
Product
440331
851931
440721
900620
851991
151329
261220
151190
240290
401519
Product Name
Dark Red Meranti, Light Red Meranti
Turntables with automatic record ch
Specified tropical woods (Meranti,
Cameras of a kind used for recordin
Sound reproducing apparatus,cassett
Palm kernel or babassu oil (excl. c
Thorium ores and concentrates
Palm oil (excl. crude) and liquid f
Cigars, cigarillos, cigarettes, etc
Gloves of vulcanized rubber (excl.
Source: UN Comtrade
RCA
63.5
55.9
52.5
51.6
41.6
40.9
40.7
36.5
33.5
32.1
PRODY
2,287
15,997
3,667
4,723
15,330
4,661
13,865
4,635
12,204
8,173
Technology
Class
RB1
MT3
RB1
HT2
MT3
RB1
RB2
RB1
RB1
LT1
Top 10 Commodities with Highest RCA
in Singapore: 2005
Top 10 Commodities with highest RCA in Singapore, 2005
Product
910899
292250
293379
711100
852031
293219
710229
900922
293090
854219
Product Name
Watch movements, complete and assem
Amino-alcohol/acid-phenols; amino-c
Lactams (excl. epsilon-caprolactam)
Base metals, silver or gold clad wi
Magnetic tape rec incorporating sou
Compounds containing an unfused fur
Diamonds industrial nes excluding m
Contact type photo-copying apparatu
Other organo-sulphur compounds, nes
Monolithic integrated circuits, nes
Source: UN Comtrade
RCA
32.29
24.68
18.29
18.24
17.63
17.28
16.4
14.73
14.25
14.21
PRODY
17,433
18,337
25,576
14,680
15,330
25,576
5,376
17,269
20,903
16,474
Technology
Class
MT3
RB2
RB2
PP
MT3
RB2
PP
HT1
RB2
HT1
Top 10 Commodities with Highest
RCA in Korea: 2005
Top 10 Commodities with highest RCA in Korea, 2005
Product
854030
890120
890590
845020
401310
901390
480990
283719
590220
721913
Product Name
Cathode-ray tubes, nes
Tankers
Floating docks and vessels which pe
Household or laundry-type washing m
Inner tubes, of rubber of a kind us
Parts and accessories of optical ap
Copying or transfer papers, nes, in
Cyanides, cyanide oxides (excl. sod
Tyre cord fabric of high tenacity y
Flat rlld prod, stainless steel, hr
Source: UN Comtrade
RCA
17.26
15.58
13.99
13.75
13.46
12.64
12.63
12.37
11.92
11.35
PRODY
17,667
14,263
10,562
15,565
10,500
20,604
22,143
9,141
16,731
10,086
Technology Class
HT1
MT3
MT3
MT3
RB1
HT2
RB1
RB2
LT1
MT2
Top 10 Commodities with Highest
RCA in Thailand: 2005
Top 10 Commodities with highest RCA in Thailand, 2005
Product
400129
110814
400110
520615
400121
110230
845012
100640
200820
160414
Product Name
Other natural rubber, in primary fo
Manioc (cassava) starch
Natural rubber latex, in primary fo
Uncombed single cotton yarn, with <
Smoked sheets of natural rubber
Rice flour
Washing machines of a dry linen cap
Broken rice
Pineapples, prepared or preserved (
Prepared or preserved tuna, skipjac
Source: UN Comtrade
RCA
74.90
70.10
64.75
64.33
59.31
52.26
50.45
44.91
40.49
36.54
PRODY
1,169
8,693
1,169
4,262
1,169
4,753
18,070
4,455
9,337
10,775
Technology Class
PP
RB2
PP
LT1
PP
RB1
MT3
PP
RB1
RB1
Export Competition with
Neighboring Economies
• Increasing concentration on electronics and rapidly
intensifying competition from China (whose own
production and trade in electronics has risen
dramatically) is evident from the table below:
Share of Overlapping Trade Values
Country
Japan
Thailand
Taiwan (China)
Korea
China
India
Indonesia
Singapore
Source: UN COMTRADE
1995
51.4%
28.1%
36.3%
38.3%
6.8%
21.3%
55.7%
2000
68.3%
33.6%
52.6%
49.1%
61.2%
7.3%
26.0%
58.3%
2005
55.5%
34.0%
49.2%
49.7%
60.9%
14.4%
29.5%
54.9%
Exports of Electronic Components
by China
Exports of Electronic Components (countries of destination), by China 1995-2005
EEC15
HKG
2005
IDN
JPN
KOR
MYS
2000
PHL
RUS
SGP
THA
TWN
1995
USA
Others
0%
Source: UN Comtrade
20%
40%
60%
80%
100%
Imports of Electronic Components
by China
Imports of Electronic Components (by country of origin), by China 1995-2005
DEU
HKG
IDN
JPN
KOR
MYS
PHL
SGP
THA
TWN
USA
Others
2005
2000
1995
0%
Source: UN Comtrade
20%
40%
60%
80%
100%
Recent Export Diversification by Malaysia
and Other East Asian Economies
• Very limited diversification.
• Electronic and Electrical products, major export sector.
0
• In value terms, this
was higher than only
two other East Asian
economies: Indonesia
and Thailand.
High-Technology
100000 200000 300000
value in millions of US$
Exports of Electronic and Electrical Manufactures
1995
2000
year
Malaysia
Japan
China
India
Korea, Republic of
Source: UN COMTRADE
2005
Thailand
Taiwan
Singapore
Indonesia
New Exports
• Malaysia had 132 commodities that it started to export
in any year after 1995 (beginning year for this study)
and continued to export positive amounts till 2006.
• Indonesia and India on the other hand, had 309 and
219 “new” products in their export markets.
New Exports of Malaysia
(Top 10 by Trade Value)
Product
Year Discovered
271000
2002
271119
1996
440722
1997
290220
1997
291736
1996
271600
2000
271114
1998
290250
1996
370242
1998
283324
1997
Source: UN Comtrade
Product Name
Petroleum oils, etc, (excl. crude);
Petroleum gases and other gaseous h
Specified tropical woods (OKoume...
Benzene
Terephthalic acid and its salts
Electrical energy
Ethylene, propylene, butylene and b
Styrene
Film, in rolls, non-perforated, wid
Sulphates of nickel
Trade Value 2006
5233042545
266536600
206958080
141035612
130830762
122121205
90471723
46615116
42007278
29066139
Fastest Growing New Exports from
Malaysia
Fastest growing “new” exports from Malaysia, 2000-2005
Product Product Name
722692 Flat rolled prod, as, o/t stainless
290941 2,2-Oxydiethanol (diethylene glycol
481131 Paper..., coated... with plastics,
284020 Other borates, nes
580123 Weft pile fabrics of cotton, nes
290220 Benzene
841210 Reaction engines nes other than tur
283324 Sulphates of nickel
291734 Other esters of orthophthalic acid,
271114 Ethylene, propylene, butylene and b
Source: UN COMTRADE
Trade Value 2006
(US$ million)
4.52
6.01
2.38
2.47
11.25
141.04
20.17
29.07
5.83
90.47
Ann. Growth rate
year
(2000-2005) entered
305.4
1996
248.8
1997
43.9
1996
43.4
1996
39.6
1997
29.0
1997
23.1
1996
19.6
1997
15.2
1996
14.8
1998
New Electronics Exports from
Indonesia, India, and Malaysia
New, Electronic & Electricals that appeared over 1995-2006 & their 2000-2004, PRODY.
Country
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Product
902221
902229
902290
854020
854042
854081
900911
850133
850520
853090
854310
851120
841012
841231
841280
850612
850740
850212
850220
853940
Product Name
Apparatus based on the use of alpha
Apparatus based on the use of alpha
Parts and accessories for app based
Television camera tubes, image conv
Klystron tubes
Receiver or amplifier valves and tu
Electrostatic photo-copying apparat
DC motors,DC generators,of an outpu
Electro-magnetic couplings, clutche
Parts of electrical signalling, saf
Particle accelerators
Ignition magnetos, magneto-generato
Hyd turbines & water wheels of a po
Pneumatic power engines & motors li
Engines and motors nes
Mercuric oxide primary cells & batt
Nickel-iron electric accumultors
Generating sets,diesel or semi-dies
Generating sets with spark-ignition
Ultra-violet or infra-red lamps; ar
PRODY
20,109.1
20,109.1
20,109.1
17,667.2
17,667.2
17,667.2
17,269.1
17,025.1
14,631.8
14,631.8
14,631.8
14,572.4
13,834.9
13,834.9
13,834.9
12,889.2
12,889.2
11,781.9
11,781.9
9,511.6
India
India
India
India
840110
840140
852210
853010
Nuclear reactors
Parts of nuclear reactors
Pick-up cartridges
Electrical signalling,safety or tra
16,569.3
16,569.3
15,707.7
14,631.8
Malaysia
846931
Source: UN COMTRADE
Typewriters, non-electric, weighing
8,470.0
Scope for Export Diversification
• “Product space” identifies whether future export
diversification is “easier” for a country.
• X-axis measures the distance to new export
opportunities. Closer to the origin, “easier” it is
to start exporting this commodity.
• Y-axis measures the difference in PRODY of a
commodity and the average PRODY of the
current export basket. Positive number means
moving up the value chain.
• China has more opportunities for upgrading into
higher value-added items than Malaysia.
Product Space:
Malaysia
-10000
0
10000 20000
M YS
0
5
10
invdensity
Elect ronics and Elect ricals
Automotive
Engineering
Ot her, Low-Technology
Ot her, Resource-Based
Graphs by co untry
Source: Authors’ calculations
Other, High-Technology
Process
Textile, garment & footwear
Agro-Based
Primary Products
Product Space:
China
-10000
0
10000 20000
CHN
0
5
10
invdensity
Electronics and Electricals
Automotive
Engineering
Other, Low-Technology
Other, Resource-Based
Graphs by co untry
Source: Authors’ calculations
Other, High-Technology
Process
Textile, garment & footwear
Agro-Based
Primary Products
Product Space:
Thailand
-10000
0
10000 20000
THA
0
5
10
invdensity
Electronics and Electricals
Automotive
Engineering
Other, Low-Technology
Other, Resource-Based
Graphs by co untry
Source: Authors’ calculations
Other, High-Technology
Process
Textile, garment & footwear
Agro-Based
Primary Products
Technology Transfer via Malaysia’s Imports
• Technology transfer embodied in capital imports may have
diminished.
• Sources of imports of plant and equipment have changed, fewer
imports from the United States and Japan and an increasing share
coming from China and Singapore.
Composition of Machinery & Equipment Imports,
by Malaysia
CHN
2005
EEC15
IDN
JPN
2000
KOR
OTH
SGP
THA
1995
USA
0%
20%
40%
60%
80%
100%
IRCA and RCA Comparison
Top 5 Product categories with highest IRCA in 1995 and 2000, compared with Top 5
Commodities with highest RCA in 2005
Class Title
Horizontally Supported
Planar Surfaces
IRCA
1995
105.8
Bottles and Jars
93.5
Geometrical Instruments
45.4
Conveyors: Power-Driven
Illumination
44.4
26.9
Class Title
Conveyors:
Fluid Current
Static Molds
Glass
Manufacturing
Expanded,
Threaded,
Driven,
Headed, ToolDeformed, or
LockedThreaded
Fastener
Solid Material
Comminution
or
Disintegration
IRCA
2000
RCA
2005
21.4
Product Name
Dark Red Meranti, Light
Red Meranti
Turntables with automatic
record ch
Specified tropical woods
(Meranti,
18.8
Cameras of a kind used for
recording
51.6
17.8
Sound reproducing
apparatus, cassette
41.6
306.1
107.1
63.5
55.9
52.5
Index of Innovation Comparative Advantage (IRCA) is the ratio of a country’s share of patents in a
particular sector, to the country’s share of total patents in the world.
Foreign Direct Investment
• Overall FDI inflow peaked in 2000.
• Electronic components and
telecommunication equipment receive
the lion’s share of FDI.
• Other sectors receive FDI in bursts. But
no apparent trends pointing to sustained
diversification.
Sectoral Flow of FDI
Top 12 FDI sectors in Malaysia
0
1000
2000
value in millions of US$
1999
2000
2001
year
Basic Metals
Coke, Ref. Petro. Prdts & Nucl.
Fabri. Met. Prdts, Excpt Mach. & Equip.
Radio, Tele. & Comm. Equip. & App.
Paper & Paper Prdts
Rubber & Plastics Prdts
2002
2003
Chems & Chems Prdts
Elec. Machinery & App.
Food Prdts & Bev.s
Oth. Transport Equip.
Oth. Non-Metallic Mineral Prdts
Others
New Starts and Growth of Firms
• New firm formation is most active in
Kuala Lumpur/Klang Valley with 1,123
firms, followed by Johor, Penang, and
Malacca.
• Main industries favored : publishing and
printing, food manufacturing, plastics,
and apparel. New starts in electronics
and machinery most often seen in
Penang.
New Entry of Firms in Kuala
Lumpur
Top 10, aggregate net entry in Manufacturing, Kuala Lumpur
1995-1998
5 digit
IC
30000
IC description
NC
35600
NC (3 digit level printing,
publishing & allied industries
Plastic products, not elsewhere
classified
37100
NC (4 digit level iron & steel basic
industries)
34210
38299
34220
32210
38000
37000
34200
Machinery & equipment not
elsewhere classified
NC (3 digit level printing,
publishing & allied industries
NC (3 digit level wearing apparel,
except footwear
NC (2 digit level fabricated metal
products, machinery and
equipment)
NC (2 digit level basic metal
industries
Printing, publishing & allied
industries
Note: NC indicates Not classified
Source: EPU Malaysia
1999-2002
Agg.
Net
Entry
286
5 digit
IC
30000
120
34210
110
31100
85
35600
76
34220
74
37100
72
32210
65
37000
63
38299
60
1,011
34200
IC description
NC
NC (3 digit level printing,
publishing & allied
industries
NC (3 digit level food
manufacturing
Plastic products, not
elsewhere classified
NC (3 digit level printing,
publishing & allied
industries
NC (4 digit level iron &
steel basic industries)
NC (3 digit level wearing
apparel, except footwear
NC (2 digit level basic
metal industries
Machinery & equipment
not elsewhere classified
Printing, publishing &
allied industries
2003-2006
Agg.
Net
Entry
265
5 digit
IC
30000
145
34210
87
31100
82
34220
79
32210
63
35600
58
37000
45
37100
44
38439
40
908
31000
IC description
NC
NC (3 digit level printing,
publishing & allied
industries
NC (3 digit level food
manufacturing
NC (3 digit level printing,
publishing & allied
industries
NC (3 digit level wearing
apparel, except footwear
Plastic products, not
elsewhere classified
NC (2 digit level basic
metal industries
NC (4 digit level iron &
steel basic industries)
Motor vehicles parts &
accessories
NC (2 digit level food,
beverages and tobacco
Agg.
Net
Entry
202
195
169
131
113
79
70
62
53
49
1,123
Exploiting Urban
Agglomeration Economies
• Kuala Lumpur is the principal urban center in
Malaysia, judging by the population, economic
size, and growth, followed by Johor, Penang,
and Malacca.
• FDI is highest in Johor because of its proximity
to Singapore, followed by Penang.
• From the perspective of the knowledge
economy, Kuala Lumpur has the edge in terms
of size, the diversity of services it offers, the
presence of research institutions, the
headquarters of firms, and the quality of the IT
infrastructure.
GDP of Four Cities in Malaysia
GDP and its growth rates in 4 cities in Malaysia
GDP (RM Million in 1987 prices)
Johor
Kuala Lumpur
Malacca
Penang
GDP (% of national)
Johor
Kuala Lumpur
Malacca
Penang
Annualized growth rate
Johor
Kuala Lumpur
Malacca
Penang
Source: EPU Malaysia
1995
18,153.0
21,157.0
5,080.0
13,293.0
2000
23,798.0
25,963.0
6,040.0
17,064.0
2005
29,801.0
30,412.0
7,302.0
21,277.0
1995
10.9
12.7
3.1
8.0
2000
11.3
12.4
2.9
8.1
2005
11.6
11.8
2.8
8.3
1995
-
2000
4.6
3.5
2.9
4.3
2005
3.8
2.7
3.2
3.8
Knowledge Economy Potential
Number of GRIs
Putrajaya
7
Source: from EPU
KL
22
Penang
1
Johor
1
Malacca
0
Location of public and private universities
KL
Penang
Public
3
1
Private
8
0
Note: Only the main campuses are included in this table.
Source: from EPU
Johor
2
0
Malacca
1
0
Cyberjaya
2
Location of Headquarters
KL
Putrajaya
23
2
Source: Supplied by EPU
Penang
2
Selangor
10
Ipoh
1
Perak
2
Logistics Capabilities
• Kuala Lumpur/Port Klang leads followed by
IDR/Tanjung Pelepas/Senai Airport with Penang in
third place.
• Port Klang has lowest logistics costs to Chennai,
Dubai, and Munich, relative to Singapore, Hong
Kong, and Shanghai.
• However, Kuala Lumpur/Port Klang trails far behind
other logistics hub in the region with respect to
Internet connectivity, air transport (passenger and
freight), and container shipping capacity.
• In terms of network connectivity, Tokyo, Hong Kong,
and Singapore lead with Malaysia ranked 18th,
making it a regional node.
Availability of Capital
• Malaysian firms do not have undue difficulties
accessing credit.
• Risk capital is relatively abundant (US$900
million, 3% of total investment). Providers are
mainly public bodies (41%).
• The number of deals peaked in 2000 at 20.
For seed and start-up stage, the peak was only
5 deals in 2000 and 2001.
• Demand more a constraint than supply and
technology focused VCs have few attractive
deals to fund.
100 150 200 250
Domestic credit to private sector
0
50
% of GDP
Availability of Credit
1995
2000
year
Malaysia
Japan
China
India
Korea, Republic of
2005
Thailand
Taiwan
Singapore
Indonesia
Number of VC Deals in Malaysia
Venture Capital Deals per Year
80
70
60
Number of Deals
50
Malaysia
Thailand
Singapore
40
30
20
10
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
Innovation Capabilities
• Innovation capability in Malaysia is weak.
– Low R&D spending (0.71% of GDP) among East Asian economies,
even accounting for the level of development.
– Number of people engaged in research was small (12,800 in 2004),
even after accounting for population size and per capita GDP.
– Sectors of focus by private firms (auto and electronics), GRIs (agrobased and metallurgy), and universities (biochemistry and
engineering) are all different.
– Domestic patent grants dominated by foreign residents (98%).
– USPTO patents: 131 in 2006, bulk of them assigned to foreign
affiliates.
– Licensing and royalty fees: 1% of GDP in 2006, compared to 7% in
Singapore and 10% in Ireland.
– Quality of education is middling and there is no improving trend.
– IT capabilities lag those of Singapore, Korea, and Japan (e.g.
international bandwidth is 3Gbps).
4
R&D spending
3
Japan
Korea, Rep.
2
Singapore
1
China
Malaysia
Hong Kong, China
0
Thailand
0
20000
40000
per capita GDP, constant 2000 US$
60000
Research in GRIs and Universities
Top 10 Fields of Emphasis by GRIs, 2004
Description
Crop Production
Pest and Disease Management
ICT Applications
Agricultural Engineering
Civil Engineering
Horticulture
Radiation Chemistry
Environmental Management and Bioremediation
Resource-Based Technology
Communication
R&D (million ringgit)
23.7
23.2
18.2
15.1
12.4
10.9
10.5
9.3
8.0
7.4
Share of Total
8.0%
7.8%
6.1%
5.1%
4.2%
3.7%
3.5%
3.1%
2.7%
2.5%
Top 10 Fields of Emphasis by Universities, 2004
Description
Biochemistry
Manufacturing and Production Engineering
Communication
Education
Energy Technology
Mechanical Engineering
Automotive Engineering
Information Systems
Process Technology and Engineering
Electronic Materials
Source: EPU
R&D Spending
(million Ringgit)
37.1
29.7
18.4
16.5
13.9
13.7
12.2
11.6
11.5
11.0
Share
7.2%
5.8%
3.6%
3.2%
2.7%
2.7%
2.4%
2.3%
2.2%
2.1%
Policies and Business Environment
• Incentive policies for the knowledge economy have
been introduced since early 1990s; Are broad ranging
and comparable to other economies in East Asia.
Sweetening tax incentives not a priority.
• Infrastructure superior to that of neighboring
economies, except Singapore.
• “Doing Business” indicators relatively good and stable.
• But among policymakers, a sense that Malaysia is
underachieving. It is not upgrading fast enough and
risks losing momentum in the face of competition from
China, India, and Vietnam.
Doing Business Indicators
Doing Business Indicators
Economy
2005
Singapore
2
Japan
12
Thailand
19
Malaysia
25
Korea
23
China
108
India
138
Indonesia
131
Source: World Bank 2005a; World Bank 2006b; World Bank 2007b
2006
1
11
18
25
23
93
134
135
2007
1
12
15
24
30
83
120
123
Growth in “Alice in Wonderland”
`Well, in our country,' said Alice, still panting a little,
`you'd generally get to somewhere else -- if you
ran very fast for a long time, as we've been
doing.'
`A slow sort of country!' said the Queen. `Now,
here, you see, it takes all the running you can
do, to keep in the same place.
If you want to get somewhere else, you must run
at least twice as fast as that!'
- from “Through the Looking Glass” by Lewis Carroll
Policy Suggestions: A Summing Up
•
•
•
•
•
•
•
Malaysia should aim to double R&D spending from public and private sources over
the next ten years. This must be supported by higher education policies and
incentives that raise quality and volume of STEM training.
The larger firms, public and private, need to take the lead role in industrial deepening
through backward and forward integration and by stimulating knowledge assimilation
as well as domestic innovation.
Measures to strengthen the knowledge economy must be concentrated on at the
most one or two urban areas where the main universities and corporate headquarters
are located.
Urban centers must create the environment and culture which will attract and retain
talented people from Malaysia and overseas. This calls for a mix of policies including
policies affecting urban design.
A dynamic urban knowledge environment which is conducive to the exchange of
ideas, to both research and business related networking, and to innovation, demands
an IT infrastructure that is comparable to the best in Asia.
Polices that enhance openness and market competition can reinforce technological
upgrading.
Better, more detailed and current data to monitor changes in innovativeness and
productivity across subsectors and increasing access to public data to encourage
research on socio-economic issues, would assist in policy formulation.