Malaysia is a country in South

East Asia whose strategic sea-

lane position brought trade and Chap 1
foreign influences that
fundamentally influenced its
history. Hindu and Buddhist
cultures imported from India
dominated early Malaysian
history.

Tips: Student should know Introduction to Economic Development

history in Malaysia.

1.1 Malaysia History

Malaysia is a country in South East Asia whose strategic sea-

lane position brought trade and foreign influences that
fundamentally influenced its history. Hindu and Buddhist
cultures imported from India dominated early Malaysian
history. They reached their peak in the Sumatran-based
Srivijaya civilization, whose influence extended through
Sumatra, Java, the Malay Peninsula and much of Borneo from
the 7th to the 14th centuries.

Although Muslims had passed through Malaysia as early as

the 10th century, it was not until the 14th and 15th centuries
that Islam first established itself on the Malayan Peninsular.

The adoption of Islam by the 15th century saw the rise of

number sultanates, the most prominent of which was the
Melaka (Malacca). Islamic culture has had a profound
influence on the Malay people, but has also been influenced
by them.

The Portuguese were the first European colonial powers to

establish themselves in Malaysia, capturing Malacca in 1511,
followed by the Dutch. However, it was the British, who after
initially establishing bases at Jesselton, Kuching, Penang and
Singapore, ultimately secured their hegemony across the
territory that is now Malaysia.

The Anglo-Dutch Treaty of 1824 defined the boundaries

between British Malaya and the Netherlands East Indies
(which became Indonesia). A fourth phase of foreign influence
was immigration of Chinese and Indian workers to meet the
needs of the colonial economy created by the British in the
Malay Peninsula and Borneo.
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 Economic growth is the
increase of per capita
Economic
gross growth product
domestic is the
increase Economic
of per capita
(GDP) or other measure
development is the
gross domestic
Economic
of aggregate productincome
(GDP) increase
or other in
measures the
Japanese invasion during World War II ended British domination in development
typically is the
reported as the
of annualstandard of
aggregate living in
income,
Malaysia. The subsequent occupation from 1942 to 1945 unleashed increase rate inof changethe in
nationalism in Malaya and Borneo. In the Peninsula, the Malayan typicallya
real nation's
reported
GDP. population
as the
standard
annual of change
rate of living in in
Communist Party took up arms against the British. A tough military with sustained
response was needed to end the insurgency and bring about the reala GDP.
nation's population
growth from a
with sustained
establishment of an independent, multi-racial Federation of Malaya in simple, low-income
growth from a
1957. economy to a
simple, low-income
modern, high-income
On 31 August 1963, the British territories in North Borneo and economy to a
economy.
Singapore were granted independence and formed Malaysia with the modern, high-income
Peninsular states on 16 September 1963. Approximately two years economy.
later, Singapore was expelled from the Federation.
Tips : Student most know
A confrontation with Indonesia occurred in the early-1960s. Race riots definition of economic
in 1969 led to the imposition of emergency rule, and a curtailment of Tips : Student most know
growth.
political life and civil liberties which has never been fully reversed. definition of economic
Since 1970 the "National Front coalition" headed by United Malays growth.
National Organisation (UMNO) has governed Malaysia. Economic Source of Economic
growth dramatically increased living standards by the 1990s. This Development
growing prosperity helped minimise political discontent. Source of Economic
Development
Labor force
1.2 What is Economic Growth?
Labor force
Technology
Economic growth is the increase of per capita gross domestic product Technology
(GDP) or other measures of aggregate income, typically reported as Capital
the annual rate of change in real GDP. Capital
Natural resource
Natural
Landresource
1.3 Source Of Economic Growth
Difference countries have different level of economic development. LandEducation and
knowledgeable skill
Education and
i. Productivity
knowledgeable skill
ii. Factor production(natural resource)
iii. Tehnology advance
iv. High rate of social, polical and ideological transformation

1.4 What is Economic Development?

Economic development is the increase in the standard of living in a

nation's population with sustained growth from a simple, low-income
economy to a modern, high-income economy.

1.5 Source of Economic Development

i. Labor force
ii. Technology

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Factor Influence the Level of
Economic Development
i. Political stability
iii. Capital
ii. Human
iv. Natural resource
development
v. Land
iii. Diversification
vi. Education and knowledgeable skill
of economy
iv. Impact of
reginal economy

1.6 Source of Contributing to Rapid Economic Development

of Malaysia.
i. Its labor force is not only large for its population but
young and educated. Many of its skilled managerial
The concept of growth in an
labor force were trained in countries such as the
Islamic economy is link to
US,UK and Japan. The effect is productivity will
Islamic principle. Growth of
increase.
output and services cannot be
ii. The introduction off latest technology can bring
called as economic growth if it
country faster development.
involves production of good and
iii. Usually a developed country have a big capital such
service that can affect human
as capital in human, land, resource and income.
welfare.
iv. The availability of natural resource such as palm oil,
timber, petroleum and natural gas. Natural resource
Tips: Student should know can promote economic growth.
development in Islamic. v. The increasing educational institutions and increasing
educational system in Malaysia can produce more
workers in high qualification such as degree, master
and PhD holder.
vi. The overall stability of its political environment.
Despite its multi ethnic and multi society, Malaysia is
one of few countries that has experience changes in
leadership without loss of continuity in government
policies.
vii. Vision 2020, a vision of what Malaysia should be like
in be year 2020, has been accepted by all Malaysian.
viii. Malaysian has strong financial system. By BNM and
the financial system have been successful in dealing
with challenges from both domestic and external
development.

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 The concepts of development
from Islamic is deference with
The concepts of development
development concept in
from Islamic is deference with
conventional
development concept in
conventional

1.7 Economic Growth and Development in Islamic Perpectives The concept of development in
conventional western approach
The concept of development in
The concept of growth in an Islamic economy is link to Islamic are quantitative and qualitative
conventional western approach
principle. Growth of output and services cannot be called as economic It involveds calculation such as
are quantitative and qualitative.
growth if it involves production of good and service that can affect GDP, oer capita income,
It involveds calculation such as
human welfare. saving, investment, infrasture
GDP, oer capita income,
and development project
saving, investment, infrasture
Economic growth must incorporate a product mix which adheres to
and development project
the norms and value of Islam. Thus, economic growth in Islam may be
defined as a sustained growth of a certain kind of output and service
Meanwhile Islam ultimate
which can contribute to human welfare.
objective economic
Meanwhile Islam ultimate
development is not merely
The production of forbidden (haram) product and harmful items are objective economic
material welfare in this world
not considered as economic growth in an Islamic economy, for development is not merely
but extendes to hereafter
example the production of alcoholic beverages, scientifically untested material welfare in this world
(falah).
drugs, the rearing of pigs or being involved in immoral activities. but extendes to hereafter
The concepts of development from Islamic is deference with (falah).
development concept in conventional. The concept of development in
conventional western approach are quantitative and qualitative. It From the Islamic perpectives,
involveds calculation such as GDP, oer capita income, saving, to have such growth, the
From the Islamic perpectives,
investment, infrasture and development project. economy need capital and the
to have such growth, the
capital can be derived from
economy need capital and the
Meanwhile Islam ultimate objective economic development is not two sources namely internal
capital can be derived from
merely material welfare in this world but extendes to hereafter (falah). and external
two sources namely internal
Next, Islam stress on economic justice and faireness in the distribution and external
of income and wealth. Lastly, the development philosophy relies on
local talent and uses physical resources incolving the entire ummah.

Islam is a way of life. Its system is complete and encompasses all

aspect of life such as Islamic economic system, Islamic political
system and Islamic moral system. These are all inter-connect and
work together in perfect harmony and there is no conflict between the
welfare in this world and the hereafter.

1.8 Source of growth from the Islamic Perpectives

i. Investible Resource
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 Internal source are normally
Investible resourece are resource essential for economic from zakat, voluntary saving
Internal source are normally
growth. Such as plant and machinery. Plant and machinery force saving (EPF) and through
from zakat, voluntary saving,
generate output and creating a flow of income to the economy. taxes. It must be remember tha
force saving (EPF) and through
From the Islamic perpectives, to have such growth, the Usuary (riba) is considered
taxes. It must be remember that
economy need capital and the capital can be derived from two haram. It is not allowed in
Usuary (riba) is considered
sources namely internal and external. Islam.
haram. It is not allowed in
Islam.
Internal source are normally from zakat, voluntary saving,
force saving (EPF) and through taxes. It must be remember
that Usuary (riba) is considered haram. It is not allowed in
Islam.

On the other hand, external source can be derived by

borrowing from other Muslim countries so as to minimize the
riba based debt.

ii. Human Resource

An efficient labor force is important for economic growth.

From the Islamic perpective, efficiency requires both
professional and moral quality so as to get maximum
contribution from the labor force. Meanwhile the conventional
only emphasizes professional quality.

iii. Entrepreneurship

Most economist agree that entrepreneurship is the key

economic growth. Entrepreneurship is the creative ability of
individual to seek profit by combining resources to produce
innovative product.

1.9 Malaysian economic structure

The economic structure of Malaysia can be divided into the following sectors:  

Primary Sector: Malaysia’s economic development is largely due to its

wealth of natural resources in agriculture and forestry. Some major produces
in the country include :-
1. Peninsular Malaysia: Cocoa, Rice, Rubber, Palm and Oil.
2. Sabah: Coconuts, Rice, Rubber, Subsistence Crops and Timber

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 3. Sarawak: Rubber, Pepper and Timber
Palm oil and rubber are the major foreign exchange earners in the primary sector. In the 1960s, the
country’s forest reserves depleted at a high rate. Active steps have been taken to plant high-value trees
and various timber species.
 
Secondary Sector: Malaysia’s diversified manufacturing sector is the backbone of its economy. The
growth of the manufacturing sector is visible in its 30% contribution to the GDP in 1999 as compared to
13.9% in 1970. Electronic components contribute a significant share in Malaysia’s manufactures and
exports. It is the largest exporter of semiconductor devices and electrical goods and appliances in the
world.
 
Tertiary Sector: The service sector of Malaysia predominantly comprises Islamic banking, finance,
telecommunications and tourism. In an effort to attract foreign direct investment, Malaysian Prime
minister Najib Tun Razak introduced a variety of measures for this sector. There are expectations of
Malaysian IT spending to be at $4.5bn in 2010 from US$4.2bn in 2009 due to economic recovery.