Malaysia is a country in

South East Asia whose

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

Tips: Student should know Introduction to Economic

history in Malaysia.
Development

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

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 Economic growth is
the increase of per
secured their hegemony across the territory that is now capita gross domestic
Malaysia. product (GDP) or
other measures of
The Anglo-Dutch Treaty of 1824 defined the boundaries aggregate income,
between British Malaya and the Netherlands East Indies typically reported as
(which became Indonesia). A fourth phase of foreign the annual rate of
influence was immigration of Chinese and Indian change in real GDP.
workers to meet the needs of the colonial economy
created by the British in the Malay Peninsula and
Borneo.

Japanese invasion during World War II ended British

domination in Malaysia. The subsequent occupation from
1942 to 1945 unleashed nationalism in Malaya and
Borneo. In the Peninsula, the Malayan Communist Party
took up arms against the British. A tough military Tips : Student most
response was needed to end the insurgency and bring
know definition of
about the establishment of an independent, multi-racial
Federation of Malaya in 1957. economic growth.

On 31 August 1963, the British territories in North

Borneo and Singapore were granted independence and
formed Malaysia with the Peninsular states on 16
September 1963. Approximately two years later,
Singapore was expelled from the Federation.

A confrontation with Indonesia occurred in the early-

1960s. Race riots in 1969 led to the imposition of
emergency rule, and a curtailment of political life and
civil liberties which has never been fully reversed. Since
1970 the "National Front coalition" headed by United
Malays National Organisation (UMNO) has governed
Malaysia. Economic growth dramatically increased living
standards by the 1990s. This growing prosperity helped
minimise political discontent.

1.2 What is Economic Growth?

Economic growth is the increase of per capita gross

domestic product (GDP) or other measures of aggregate
income, typically reported as the annual rate of change
in real GDP.

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 Economic
1.3 Source Of Economic Growth development is
Difference countries have different level of the increase in
economic development. the standard of
living in a
nation's
i. Productivity
population with
ii. Factor production(natural resource)
sustained growth
iii. Tehnology advance from a simple,
iv. High rate of social, polical and ideological low-income
transformation economy to a
modern, high-
income economy.
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.

Source of
1.5 Source of Economic Development Economic
i. Labor force Development
ii. Technology i. Labor force
iii. Capital ii. Technology
iv. Natural resource iii. Capital
v. Land iv. Natural
vi. Education and knowledgeable skill resource
v. Land
vi. Education
and
1.6 Source of Contributing to Rapid Economic knowledgea
Development of Malaysia. ble skill
i. Its labor force is not only large for its
population but young and educated. Many of
its skilled managerial labor force were
trained in countries such as the US,UK and
Japan. The effect is productivity will
increase.
ii. The introduction off latest technology can
bring country faster development.

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Factor Influence the
Level of Economic
Development
i. Political
stability
ii. Human
development
iii. Diversification
of economy
iv. Impact of
reginal
economy
The concept of growth in
an Islamic economy is link
to Islamic principle.
Growth of output and
services cannot be called
as economic growth if it
involves production of
good and service that can
affect human welfare.
Tips: Student should know
development in Islamic.
iii. Usually a developed country have a big
capital such as capital in human, land,
resource and income.
iv. The availability of natural resource such as
palm oil, timber, petroleum and natural
gas. Natural resource can promote
economic growth.
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
1.7 Economic Growth and Development in Islamic
development from
Perpectives
Islamic is deference with
development concept in
The concept of growth in an Islamic economy is link
conventional
to Islamic principle. Growth of output and services
cannot be called as economic growth if it involves
production of good and service that can affect
human welfare.

The concept of
Economic growth must incorporate a product mix
development in
which adheres to the norms and value of Islam.
conventional western
Thus, economic growth in Islam may be defined as a
approach are
sustained growth of a certain kind of output and
quantitative and
service which can contribute to human welfare.
qualitative. It involveds
calculation such as GDP,
The production of forbidden (haram) product and
oer capita income,
harmful items are not considered as economic
saving, investment,
growth in an Islamic economy, for example the
infrasture and
production of alcoholic beverages, scientifically
development project
untested drugs, the rearing of pigs or being involved
in immoral activities.
The concepts of development from Islamic is
deference with development concept in Meanwhile Islam
conventional. The concept of development in ultimate objective
conventional western approach are quantitative and economic development
qualitative. It involveds calculation such as GDP, oer is not merely material
capita income, saving, investment, infrasture and welfare in this world but
development project. extendes to hereafter
(falah).
Meanwhile Islam ultimate objective economic
development is not merely material welfare in this
world but extendes to hereafter (falah). Next, Islam From the Islamic
stress on economic justice and faireness in the perpectives, to have
distribution of income and wealth. Lastly, the such growth, the
development philosophy relies on local talent and economy need capital
uses physical resources incolving the entire ummah. and the capital can be
derived from two
Islam is a way of life. Its system is complete and sources namely internal
encompasses all aspect of life such as Islamic and external
economic system, Islamic political system and
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 Internal source are
Islamic moral system. These are all inter-connect normally from zakat,
and work together in perfect harmony and there is voluntary saving, force
no conflict between the welfare in this world and the saving (EPF) and
hereafter. through taxes. It must
be remember that
Usuary (riba) is
1.8 Source of growth from the Islamic Perpectives considered haram. It is
not allowed in Islam.
i. Investible Resource

Investible resourece are resource essential for

economic growth. Such as plant and
machinery. Plant and machinery generate
output and creating a flow of income to the
economy. From the Islamic perpectives, to
have such growth, the economy need capital
and the capital can be derived from two
sources namely internal and external.

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.

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 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
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.