The Political Economy of Trade Reform in Emerging Markets

The Political Economy of Trade Reform in Emerging Markets

Crisis or Opportunity?

Edited by Peter Draper, Philip Alves and Razeen Sally

This timely book brings fresh analysis to the important issue of trade policy reform in emerging markets.

Chapter 5: Malaysia

Mohamed Ariff and Gregore Pio Lopez

Subjects: economics and finance, international economics, political economy, politics and public policy, political economy


Mohamed Ariff and Gregore Pio Lopez BACKGROUND Malaya gained independence from the British in 1957 with a nascent democracy, framed by the Federal Constitution, which provided for a constitutional Supreme Head of State, bicameral Parliament and a federal government structure.1 On 13 September 1963, Sarawak and Sabah on the Borneo Island together with Singapore joined the Federation of Malaya to form Malaysia. Singapore was expelled from Malaysia on 9 August 1965. Malaysia is a pluralist society comprising three major ethnic groups in the Peninsula with a mix of indigenous people on the Borneo Island. At the time of independence, the balance between ethnic Malay and other citizens was equal. In 2005, Bumiputeras (ethnic Malays and other indigenous people) accounted for 65 per cent of the population, Chinese 26 per cent and Indians just under 8 per cent. Because of Malaya’s economic history, Malays were also predominantly rural. This composition, together with the ‘special position’2 granted to the Bumiputeras (sons of the soil) by the British, has had a profound impact on domestic politics, which has in turn strongly influenced trade and broader economic policy reforms. At Independence in 1957, Malaysia was a dualistic low-income economy reliant on commodities, mostly tin, rubber and palm oil, for its foreign exchange earnings.3 While palm oil earnings have remained significant, Malaysia has diversified its export earnings into other sectors such as manufacturing and tourism. Table 5.1 illustrates the changes in the structure of the Malaysian economy since 1965. This economic modernization developed in an...

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