ABSTRACT
Malaysia's striking economic performance during the last decade attracted great interest in policy and academic circles around the world. Sustained high growth rates involved profound structural change. Malaysia was transformed in a single generation from its post-colonial status as a primary product exporter into an industrially oriented economy and leading global manufactures exporter. I Real GDP grew by an average 5.2 per cent per year during 1980-90, and accelerated to a remarkable 8.7 per cent per year during 1990-95. Manufacturing output rose even more swiftly, averaging 8.9 per cent and 13.2 per cent per year during the same two periods. Malaysia's merchandise exports grew by 11.5 per cent annually during 1980-90 and by 17.8 per cent in 1990-95. Manufactured goods made up only 19 per cent of exports in 1980, yet by 1995 they accounted for 77.4 per cent of a vastly larger total. 2
Even before the East Asian economic crisis erupted in 1997, however, notes of concern were often sounded amidst the chorus of acclaim for Malaysia's industrial achievements. Malaysia's economic 'miracle' presented a curious mixture of manifest dynamism and chronic structural weaknesses, giving rise to conflicting views as to whether rapid industrialisation was based on durable strengths or transient factors. On the one hand, continued inflows of foreign direct investment (FD!) and the partial diversification of manufactured exports seemed to dispel fears that rising wages would erode the country's competitiveness and cause foreign fIrms to divert their investments to lower-cost countries. At the same time, locally-owned fIrms' minimal participation in export industries, limited inter-industry linkages, and lagging productivity growth remained conspicuous problems. One leading Malaysian economist avowed a widely-shared optimism that 'There is always room at the top for a country that aims high and is prepared to work hard at it. It appears that Malaysia has the courage and the means to do just that' (Ariff 1991: 194). Other observers argued that the country's remarkable economic performance resulted from external factors like illI and hence that 'There is an inherent fragility in the current Malaysian industrial "take-off'" (Bowie 1994: 191).
