Malaysia at a Cross Roads: Diagnosing the Constraints to High Income Status

In 2008, Malaysia was recognized by the Growth Commission – a distinguished panel comprising 2 Nobel Prize Winning Economists and other leading development practitioners – as one of thirteen countries that sustained high growth in the post-war period. The 30-year stretch that caught the attention of the Growth Commission was between 1967 and 1997 when Malaysia grew at an average of 7.3% per year. This long stretch of growth was interrupted by periods of external shocks including the Volcker shock of 1986, the Asian Financial crisis in 1997/8, later the so-called Dot Com Bubble of 2001, and more recently the Global Financial Crisis of 2008. Despite these shocks, Malaysia remained resilient - formally earning the tittle - Upper Middle Income Country - in 1992. (See summary figure that breaks down the country's per capita growth story).

As everyone looks to the High-Income classification in 2020 my colleagues and I have written a book that takes stock of Malaysia's impressive growth since independence. We look at the drivers thereof and potential constraints going forward. The book, “Malaysia at a Cross Roads: Diagnosing the Constraints to High Income Status” helps structure a discussion on macroeconomic risks and other potential hurdles to continued growth.

We find that the momentum underlying Malaysia’s growth has been forward-looking government policies and an increasingly involved private sector. New growth drivers will however be needed to complement ongoing efforts under the National Transformation Program and to sustain growth beyond 2020. Coordinating towards an innovation-led model means a greater role for risk capital to facilitate discovery of new engines of growth. An increasingly vigilant fiscal and monetary framework will help insulate Malaysia from external volatility – limiting the impact of interruptions on the population. The book further recommends greater regional and state-level approaches to understanding growth drivers to ensure transformation is felt at the local level.