TRADE REFORMS: THE MALAYSIAN EXPERIENCE

The document analyzes Malaysia's transition from a commodity-reliant economy to a manufacturing and services hub through four phases of industrial policy: import substitution, export-oriented industrialization, heavy industry substitution, and high-technology export orientation. It argues that trade reforms were deeply entwined with the New Economic Policy (NEP) aimed at poverty eradication and restructuring society to benefit the Bumiputera community. While the reforms led to significant GDP growth and poverty reduction, the authors note that the state maintained control over strategic sectors through Government-Linked Companies (GLCs) and that growth has recently trended downward.

• Malaysia's industrial development progressed through four distinct phases: Import Substitution Industrialisation (1957-1968), Export Oriented Industrialisation (1968-1986), Heavy Industries Import Substitution (1981-1985), and High Technology Export Oriented Industrialisation from 1986 onwards.
• Trade and industrial policies were primarily driven by the New Economic Policy (NEP, 1971-1990), which sought to maintain national unity by eradicating poverty and restructuring society to reduce the link between race and economic function, specifically benefiting the Bumiputera community.
• The establishment of Free Trade Zones (FTZs) via the Free Trade Zones Act 1971 was a key strategy to promote manufactured exports, acting as 'foreign enclaves' with duty-free access to inputs and weaker labour laws to absorb surplus labour.
• The heavy industrialisation phase (ISI-II) under the Heavy Industries Corporation of Malaysia (HICOM) is characterized as a failure that led to a severe debt crisis due to unprofitable projects.
• Malaysia has become one of the most open developing economies, with total trade growing from 87 percent of GDP in 1970 to 223 percent of GDP in 2005.
• The composition of exports shifted from a reliance on rubber, palm oil, and forestry products (55 percent of exports in the 1970s) to manufactured goods, which reached 81 percent of total exports by 2005, dominated by the electrical and electronics (E&E) sub-sector.
• The government has used a low-wage policy, supported by weak labour laws and the influx of migrant workers, to maintain Malaysia's comparative advantage as a low-cost manufacturing destination.
• Despite overall liberalisation, the government maintains high protection for the national car project (Proton), with MFN applied tariff rates reaching as high as 300 percent.
• The state continues to exert significant control over the economy through 57 Government-Linked Companies (GLCs) and seven Government-Linked Investment Companies (GLICs), with 50 listed GLCs representing 36 percent of the Bursa Malaysia market capitalisation.
• While real GDP grew at an average of 6.5 percent per annum until 2005 and poverty fell from 49.3 percent in 1970 to 5.7 percent in 2004, growth rates have declined since the East Asian Financial Crisis.

APA

Ariff, M., & Lopez, G. P. (n.d.). TRADE REFORMS: THE MALAYSIAN EXPERIENCE. South African Institute of International Affairs. https://saiia.org.za/wp-content/uploads/2008/04/dttp_pap_ariff_lopez_malaysia_20071007.pdf

Chicago

Ariff, Mohamed, and Gregore Pio Lopez. TRADE REFORMS: THE MALAYSIAN EXPERIENCE. South African Institute of International Affairs, n.d. https://saiia.org.za/wp-content/uploads/2008/04/dttp_pap_ariff_lopez_malaysia_20071007.pdf.

Wikipedia

{{cite report |last1=Ariff |first1=Mohamed |last2=Lopez |first2=Gregore Pio |title=TRADE REFORMS: THE MALAYSIAN EXPERIENCE |publisher=South African Institute of International Affairs |url=https://saiia.org.za/wp-content/uploads/2008/04/dttp_pap_ariff_lopez_malaysia_20071007.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{ariffndtrade, author = {Ariff, Mohamed and Lopez, Gregore Pio}, title = {{TRADE REFORMS: THE MALAYSIAN EXPERIENCE}}, institution = {South African Institute of International Affairs}, url = {https://saiia.org.za/wp-content/uploads/2008/04/dttp_pap_ariff_lopez_malaysia_20071007.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }