Lecture 01 Brief history of

Malaysian economic
development

WE WILL COVER :-

(1) OVERVIEW OF ECONOMIC DEVELOPMENT

(2) GROWTH AND STRUCTURAL CHANGES

 ECONOMIC DEVELOPMENT
Economic development, the process whereby simple,
low-income national economies are transformed into
modern industrial economies. It is employed to describe a
change in a country’s economy involving qualitative as
well as quantitative improvements.
The usual definition of a developing country is that
adopted by the World Bank:
“low-income developing countries” in 1985 were defined
as those with per capita incomes below $400;
“middle-income developing countries” were defined as
those with per capita incomes between $400 and $4,000.
Source: World Bank (2022) (2010=100)
Average growth rate:
1961-1970 6.49%; 1971-1980 8.30%; 1981-1990 6.03%
1991-2000 7.23%; 2001-2010 4.64%; 2011-2020 4.05%
Recorded highest growth: 11.70% in 1973
Recorded lowest growth: -7.36% in 1997
Mid-1970s: oil shocks and global recession
Mid-1980s: Commodity price fell sharply, rising yen-denominated debt and cyclical
bust in electrical industry
1997-1998: Asian financial crisis; sharpest economic downturn in the history
2001 sharp fall in exports following decline in global demand of electronic and
contracting in exports following
2008-2009 global financial crisis. 2020 Covid
ECONOMICS DEVELOPMENT (CONT.)
• The first half of the 1980s was challenging period
• Commodity price fell sharply, rising yen-
denominated debt and cyclical bust in electrical
industry.

• Period of high growth, fuelled by strong

commodity prices
• Introduction of New Economic Policy (NEP)
• Oil shocks and global recession
 ECONOMICS DEVELOPMENT (CONT.)

• Growth rate has been slowing down

• Due to the Asian crisis, Malaysian recorded
real GDP growth of -7.4% in 1998.

• Growth resumed quickly • Resumption of moderate strong growth

• known as the golden age of
Malaysian economic growth
• Economy grew due to technological
innovation, positive external forces
and investment-led growth
• 2001 sharp fall in exports following decline
in global demand of electronic
• Contracting in exports following 2008-2009
global financial crisis.
 GROWTH AND STRUCTURAL CHANGES

• Most countries follow a general pattern of economic development.

Fisher-Clark theory of stages of

developement

In term of both
output and
employment

Servicing
sector
Manufacturing
sector
Agricultural
sector
• The most effective way to improve the lives of millions in
poverty is to support agriculture.
• Most of the world’s poor are farmers.
• Transforming a country’s agriculture sector can create jobs,
raise incomes, reduce malnutrition, and kick-start the economy
on a path to middle-income growth.
• Almost every industrialized nation began its economic ascent
with an agricultural transformation.
• Industrialization is a transformation away from an
agricultural- or resource-based economy, toward an economy
based on mass manufacturing.
• Industrialization is usually associated with increases in total
income and living standards in a society.
• Deindustrialisation represents a natural stage of economic
development, as economies start to shift their resources away
from manufacturing to services as a result of high
manufacturing productivity growth and increased consumption
for services as society becomes wealthier.
• It is a positive development as the high manufacturing
productivity growth, typically due to adoption of labour-saving
technologies, implies that the manufacturing workers have
become highly productive that the economy requires less of
them to meet overall demand. It is measured by a sustained
decline in the manufacturing employment share, accompanied
by a more moderate decrease in the manufacturing output share
of the economy. Examples of economies that have experienced
this path of deindustrialisation include the US, EU and Japan as
their manufacturing employment shares have fallen much faster
than their manufacturing output shares since the 1970s.
GROWTH AND STRUCTURAL CHANGES
(CONT.)
Gross Domestic Product (GDP) by Kind of Economic Activity
Exchange rate
 GROWTH AND STRUCTURAL CHANGES
(CONT.)
Implementation of deliberate policy  export diversification
As a result the economy had become fairly well diversified

1960’ 1970’ 1980’ 1990’

1957 2009
s s s s

• Agricultural and mining sector

was dominant
*** contributing 40% of GDP
*** 60% employment
 GROWTH AND STRUCTURAL CHANGES
(CONT.)
• 1985 heavy industry has been introduced
• Diversify the economic base by attracting more FDIs
(recession of 1985 )

1960’ 1970’ 1980’ 1990’

1957 2009
s s s s

• Manufacturing sector has became the

dominant sector (E & E)
• Reasons:-
*** commodity prices drops
*** Budget deficit in early 1980’s