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1 1.0 Table of contents

2 2.0 Introduction

3 3.0 Topics include

(from the period 2000 to 2017)

3.1. Progress of economic growth for Malaysia

3.1.1 Introduction - Definition
3.1.2 Analysis of the trend and justification - with chart and explanation of up and down
3.1.3 Government policy used to combat the issues
3.1.4 References

3.2 Trend of inflation in the country

3.2.1 Introduction - Definition
3.2.2 Analysis of the trend and justification - with chart and explanation of up and down
3.2.3 Government policy used to combat the issues
3.2.4 References

3.3 Level of unemployment rate

3.3.1 Introduction - Definition
3.3.2 Analysis of the trend and justification - with chart and explanation of up and down
3.3.3 Government policy used to combat the issues
3.3.4 References

3.4 Level of international trade activities

3.4.1 Introduction - Definition
3.4.2 Analysis of the trend and justification- with chart and explanation of up and down
3.4.3 Government policy used to combat the issues
3.4.4 References

4 4.0 References

TABLE OF CONTENT
2.0 Introduction

First of all, all praises goes to Allah SWT upon completing this group assignment ECO211
report. Thanks to our ECO211 lecturer, Dr. Abdul Rahim for all the guidance and supportive
words throughout the completion time that has been given to us. To each and everyone
of such hardworking groupmates, our teamwork during the time we did this report, our
efforts, tolerance as well as cooperation means everything, thank you so much to each and
everyone of us for the contribution and commitments delivered from the beginning up to the
end of the completion of this ECO211 group report. Alhamdulillah.

This report is mainly focused on some topics which were the progress of economic growth
for Malaysia, the trend of inflation in the country, the level of unemployment rate as well as
the level of international trade activities approximately from the period of 2000 up to 2017.

Besides, a rough idea of definition, analysis of the trend and justification together with the
government policies regarding on all the topics related in this report have been identified and
well described by each and everyone of us, InsyaAllah.

Last but not least, we pray and hope that this report will gain fullest satisfaction especially
from our ECO211 lecturer, Dr Abdul Rahim. Thank you.
3.0 Progress of economic growth for Malaysia from the period of 2000 until 2017
3.1.1 Introduction - Definition

Malaysia is a multiethnic, upper‐middle‐income country that has relied heavily on income

from its natural resources to engineer successful diversification into manufacturing and
sharply increased incomes for all ethnic groups. This paper examines the role of the policy‐
making process and national leadership in effecting this structural change and growth with
equity. It discusses the government’s role in transforming corporate ownership patterns while
nurturing industrial enterprises into niche products within complex value‐added chains. At
the same time, the paper underscores the difficulties and costs of attempting to move into
areas where an economy has no strong advantages, in this case heavy industries. Privatization
is seen to have been a powerful tool for expanding private enterprise despite limited
entrepreneurial skills, but it is questionable as a sustainable strategy; the aggressive formation
of new firms seems to offer better long‐term prospects. An appropriate regime of policy
making and implementation is required, characterized by political determination, stability,
high attention to growth with equity, experimentation, and an ability to learn through
implementation—both at home and from the experience of others. These are key factors
accounting for the relative success of Malaysia. Nothing in the Malaysian experience
suggests that it is possible or desirable to undertake reforms serially; in fact, the evidence
suggests that the “reform cluster” approach to policy implementation is more effective
because it addresses several coordination problems at the same time.
3.1.2 Analysis of the trend and justification with charts and explanation
(Approximately from the period 1963 until 2007)
Capital formation in the economy stepped up sharply in the late 1980s, with a government‐
led heavy industry push paralleling a high rate of domestic and foreign private investment
(from an average 17 percent of GDP in the 1960s to 23 percent in the 1970s and 29 percent in
the 1980s). It peaked at 44 percent in 1995, but plummeted after the Asian financial crisis and
has stood at an average 22 percent of GDP since 2000. A combination of domestic and
external factors dampened growth over the period 2001–07 to about 4 percent per year.

Malaysia is a pluralistic society, but with sharp cleavages in economic position, religion, and
language between the majority Bumiputera (literally, sons of the soil, which includes Malays
and other indigenous groups), the Chinese (currently 26 percent of the population), and the
Indians (8 percent).

However, following racial riots in 1969, the Malaysian authorities formulated economic and
social policies based on affirmative action and exceptional sensitivity to income distribution.
Largely, they have managed to contain the extreme tendencies and pressures on race relations
that can be endemic in a multiethnic society. Growth and development in a divisive society, it
appears, have been associated with improving equity and security.

The purpose of this case study on Malaysia is to reexamine the growth record of the
Malaysian economy in order to consider the role of policies and leadership. The points raised
by the World Bank’s Commission on Growth and Development will guide this reassessment.
The initial sections will highlight the key growth features of the economy, focusing on
structural changes and economic transformation. Manufacturing receives special attention,
with separate sections on electronics and electrical products, the automotive industry, rubber‐
based products, and palm oil products.

The information on these industries supplies a context for the assessment of policy
motivations and approaches. The discussion will also highlight the unfolding of privatization
and development of the Multimedia Super Corridor (MSC) in Malaysia, both of which the
authorities considered to be powerful instruments in achieving rapid industrialization.
Separate sections take up the role of government and good governance in economic growth,
leadership issues, policy learning processes, and implementation. Finally, some possible
lessons will be summarized.

3.1.3 Government Policies used to combat the issues

The two policies the government can employ to influence economic growth and inflation are :

• Monetary policy : Change the interest rate and affecting the supply of money (e.g.
through quantitative easing). To increase spending in the economy and encourage
economic growth, the government may lower interest rates and increase the supply of
money however this can cause an increase in inflation. If the economy is growing too
much and there is too much inflation, the government can increase interest rates and
lower the supply of money to discourage spending.

• Fiscal policy : Changing government spending and taxation to influence aggregate

demand. To increase aggregate demand in the economy (and thus economic growth) the
government may increase government spending and lower tax. If the government wants
to decrease aggregate demand, they may decrease government spending and increase
taxation.
3.1.4 References

1. ECO211 Macroeconomics Reference

2. Internet : http://siteresources.worldbank.org/EXTPREMNET/Resources/489960-
1338997241035/Growth_Commission_Working_Paper_27_Economic_Growth_Develop
ment_Malaysia_Policy_Making_Leadership.pdf

3. source : https://www.mytutor.co.uk/answers/9378/A-Level/Economics/What-two-policies-
can-the-government-employ-to-influence-economic-growth-and-inflation/
3.2 Trend of inflation in the country

3.2.1 Introduction - Definition

Inflation is the controversy issue in world economic development. It causes many others

problem to the country all to the world. It because the inflation itself is not only burden to
that country, but it also spread the effect to the related country that has relation with them.
Not even one single country can avoid the inflation can happen. It always happens but the
increasing of inflation can cause others problem worsens. It is the phenomenon that has
features of world wide. It affected that not conclude only to certain country.

When the inflation happens, it involved each part of the community. Household, workers,
investor, and even pensioner affected by the inflation. But the effect is also various, certain
people get the benefit from it and the others get the losses. It depends on how the money use
to us, either it been used to pay debt or to pay goods we buy. Recently, the world has
experience the inflation once again that affected most of the country in the world. It caused
by the increasing in price of world crude oil as a main reason. In Malaysia for example, the
inflation rate has reach up to 8.5 percent on.

Inflation has always been a major economy topic discussed for the development of a country,
whether it is developing or industrialised. It can be described as the sustained increase in
goods & services’ price levels which caused by the drop in value of currency, and ultimately
leads to the reduction of purchasing power. A changes in price level is definitely a concerning
issue for Malaysian, as they have a limited savings and low income level.

In Malaysia, increase in inflation has always been the main concern for economist, mainly
due to the increased cost of transport caused by the increase of global oil prices and weak
Malaysian currency. The Business Times stated that Malaysia's consumer price index rises
for 3.2% in January from 2016 and reaches the peak since February 2016, as shown in the
government data. With the increase of price level on food items in recent days, it is getting
burdensome and more difficult for Malaysians consumer to take care of their daily finances
today.
This research will investigate into the relationship between the inflation rate in Malaysia with
macroeconomic determinants such as gross domestic product (GDP), foreign direct
investment (FDI), exchange rate (EXC) and trade (TR). We hope that the result and findings
in our study will provide a clearer and larger picture for policy makers, investors, consumers,
or future researchers to improve the economic efficiency of Malaysia in the long run.

3.2.2 Analysis of the trend and justification with charts and explanation

Year Inflation rate (%)

1996 3.5

1997 2.7

1998 5.3

1999 2.7

2000 1.5

2001 1.4

2002 1.8

2003 1.0

2004 1.5
 2005 3.0

2006 3.6

2007 2.0

2008 5.4

2009 0.6

2010 1.7

2011 3.2

2012 1.7

2013 2.1

2014 3.1

2015 2.1

The rate of inflation is Malaysia is fluctuating in nature. The inflation rate was highest in the
year 2008 while it was lowest in 2009. The rise in the inflation rate in Malaysia is due to an
increase in the prices of crude oil. The rise in the prices of natural resources leads to an
increase in the price of natural gases and other items that leads to rise in inflation rate.

Another reason for the inflation rate in Malaysia is due to the rise in the wages and salary of
the government servant. Thirty percent of goods in Malaysia are price controlled. The
inflation rate in Malaysia in recent year has been falling due to fall in the prices of
transportation and other public utilities. The average rate of inflation in Malaysia is 3.14
percent in the year 2014 as compared to the previous year. This shows that the economy of
Malaysia is recovering.

The annual growth rate in GDP in Malaysia is 4.7 percent in 2013 and it is the most
competitive country in the world. One of the reasons for the prices of goods and service in
1998 was the currency crisis that led the prices of goods to rise. The second was the global
financial crisis in 2008 that also led the prices to rise.
3.2.3 Government Policies used to combat the issues
3.2.4 References
https://www.statista.com/statistics/319024/gross-domestic-product-gdp-in-malaysia/

https://myassignmenthelp.com/free-samples/economy-of-malaysia-and-its-inflation-con
3.3 Level of unemployment rate

3.3.1 Introduction - Definition

3.3.2 Analysis of the trend and justification - with chart and explanation of up and down

The graph above shows the level of unemployment rate in Malaysia from 2000 until 2017.
The unemployment rate in Malaysia is defined as the number of unemployed people as
percent of the labour force. The labour force does not include people who are not looking for
work, children, and the retired. It is difficult to assume that full employments refers to 100%
of the labour force being employed. Some people are unemployed as they could be moving to
a new job and choose to resign temporarily or they could be looking for another job.

Malaysia’s unemployment is relatively low and stable at around three percent which means
the population is experiencing close to full employment. The data above shows that
employment rate increase 0.53% during 2001 from 3% during 2000. On 2002, the
employment rate decreasing until 3.48% and increase back on 2003 with the rate 3.61%.
After that, Malaysia unemployment rate keep getting lesser from 2004 until 2007 which is
decrease 0.38%. Then the rate of unemployed increase during recession which in year 2008
and 2009 with 3.39% and 3.7%. During expansion which are from year 2010 until 2012, total
employment increase and the graph shows that an unemployment rate fall to 3.04%. On 2013,
the rate rise up to 3.1% before it edged down during its peak to 2.88% which is the lowest
level of unemployment rate Malaysia reach for this 17 years on 2014. On 2015 and 2016, the
jobless rate up to 3.44% before it decrease a little bit on 2017 with the unemployment rate
3.4%.

Industry has been a strong contributor to GDP and currently provides around 30% of
employment opportunities. But even more, about 50 percent of GDP is generated by the
services sector. Given the country’s strong and growing economy, average GDP per capita is
growing at increasing rates as well. However, despite these positive statistics, news reports
state that the number of job seekers and those unemployed from the three percent are
generally young people, both graduates and non-graduates, who have had trouble entering the
job market.
3.3.3 Government policy used to combat the issues

1) Increased Government Expenditure

The government can raise the level of its own spending. By spending on capital projects,
which add to the stock of capital, or by increasing aggregate demand, a platform for more
jobs is created in the economy. Increasing the aggregate demand in an economy is the most
reliable and productive method of tackling the high unemployment rate.

2) Lower Taxation

Another policy to reduce unemployment is to lower the taxation rates in the economy. A
reduction in taxation increases consumer’s disposable income available for consumption. As
consumption increases, the overall demand of different commodities is also increased. And in
order to match that increased demand, more labour is required.

3) Lower Interest Rates

Lowering interest rates is another effective policy to reduce unemployment level. When
interest rates are decreased, savings also decrease. This, in return, increases a consumer’s
income available for consumption, which ultimately boosts up consumption and demand in
the economy. Eventually, more labours are hired to fulfil that increased demand. Moreover,
this technique also encourages other firms, businesses and organizations to invest in the
economy. As the interest rates are reasonably lower, the marginal cost of investment falls.
This becomes a good enough incentive for companies and businesses to invest in the country
and it help in reducing high unemployment rate.
3.3.4 References
3.4 Level of international trade activities

3.4.1 Introduction - Definition

If you walk into a supermarket & can buy South American bananas, Brazilian coffee & a
bottle of South African wine, you are experiencing the effects of international trade.
International trade allows us to expand our markets for both goods & services that otherwise
may not have been available to us. It is the reason why you can pick between a Japanese,
German or American car. As a result of international trade, the market contains greater
competition & therefore more competitive prices, which brings a cheaper product home to the
consumer.
International trade is the exchange of goods & services between countries. This type of trade
gives rise to a world economy, in which prices, or supply & demand, affect & are affected by
global events. Political change in Asia, for example, could result in an increase in the cost of
labor, thereby increasing the manufacturing costs for an American sneaker company based in
Malaysia, which would then results in an increase in the price that you have to pay to buy the
tennis shoes at your local mall. A decrease in the cost of labor, on the other hand, would
result in you having to pay less for your new shoes.
Trading globally gives consumers & countries the opportunity to be exposed to goods &
services not available in their own countries. Almost every kind of product can be found on
the international market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies, &
water. Services are also traded: tourism, banking, consulting, & transportation. A product that
is sold to the global market is an export, & a product that is bought from the global market is
an import. Imports & exports are accounted for in a country’s current account in the balance
of payments.
3.4.2 Analysis of the trend and justification with charts and explanation

Strongest growth in world trade since 2011

Global trade recorded its highest growth rate in six years in 2017, both in volume & value
terms. Merchandise trade volume, as measured by the average of exports & imports, grew by
4.7 per cent, making the first annual increase in excess of 3.0 per cent since 2011. The dollar
value of merchandise exports rose by 11 per cent, to US$ 17.73 trillion, while commercial
services exports increased by 8 per cent to US$ 5.28 trillion.
Merchandise trade growth in 2017 was up sharply from 2016, when trade volume grew by
just 1.8 per cent, the smallest increase since the financial crisis of 2008. Strong growth in
trade volume in 2017 was driven primarily by cyclical factors, as world growth in GDP at
market exchange rates rose to 3.0 per cent from 2.3 per cent the previous year.
This economic activity was driven by increased investment spending, particularly in the
United States, & rising consumption, notably in Japan. Meanwhile, China & the European
Union maintained a steady rate of expansion, providing a solid base for global demand.
Growth in trade volume was strong in 2017 despite trade tensions. In the first half on 2018,
these tension translated into a number of trade-restrictive measures being imposed, covering a
wide range of goods & major economies. How these measures will affect trade in 2018
remains to be seen, but they risk triggering a cycle of retaliation that could be disruptive for
global trade & growth.
Return to historical norm for growth in merchandise trade volume
Historically, world merchandise trade volumes have grown around 1.5 times faster than real
GDP at market exchange rates. The ratio of trade to GDP growth (referred to as the
“elasticity of trade with respect to income”) rose above 2.0 in the 1990s, but fell back to 1.0
in the five years following the financial crisis (2011-2016). This elasticity measure rebounded
from 0.8 in 2016 to 1.5 in 2017, which is close to the historical average. Stronger trade
growth relative to GDP growth is expected to continue at least into 2018, barring major
economic shocks.
Growth in trade volume of 4.7 per cent in 2017 was close to the average rate of 4.8 per cent
since 1990 & firmly above the post-crisis average of 3.0 per cent. The increase in
merchandise trade in volume terms last year is somewhat due to the weakness of trade over
the preceding two years, which provided a lower base for the current expansion. The fact that
trade growth in value terms was stronger than in volume terms reflects both increasing
quantities & rising prices.
Based on existing economic projections in early 2018, the outlook for trade is broadly
positive. Brighter prospects reflect not only increased investment & employment gains but
also improved business & consumer confidence. Estimates of GDP growth were revised
upwards over the course of 2017, which partly explains the fact that merchandise trade
growth of 4.7 per cent for the year exceeded even the most optimistic earlier predictions.
However a range of downward risks can easily undermine the forecast.
Despite an improvement in trade growth, some structural factors that weighed on trade in
recent years are still present. These include the rebalancing of the Chinese economy away
from investment (which has a very high import content) & towards consumption (which has a
lower import content compared with investment) & the reduced pace of global trade opening
in recent decades. China’s rebalancing might dampen import levels slightly in the short-run
but it should produce stronger, sustainable growth over the long term, which would support
more trade. On the other hand, the lack of further substantive trade opening would be
expected to produce lower trade growth in both the short & long-run.
3.3.3 Government policy used to combat the issues
3.3.4 References

1. R. Heakal. (2018, Jan 12). What is International Trade? Retrieved from

https://www.investopedia.com/insights/what-is-international-trade/
2. Latest Trends in World Trade 2017-2018. Retrieved from
https://www.wto.org/english/res_e/statis_e/wts2018_e/wts2018chapter03_e.pdf