Evidence from Africa, Asia and Latin America
Chapter 6: Economic performance, local sourcing and technological intensities in Malaysia
Rajah Rasiah and Ganesh Rasagam 6.1 INTRODUCTION Foreign direct investment (FDI) has played a major role in Malaysia’s industrial development, especially in the expansion of manufactured exports since the early 1970s. Although speciﬁc instruments such as the Industrial Coordination Act of 1975 were introduced to shield foreign participation – including non-indigenous investment – in inward industries, generous incentives have targeted export-oriented manufacturing ﬁrms since the Investment Incentives Act of 1968, but especially following the opening of free trade zones in 1972 (Rasiah, 1993). From a focus on just investment and employment, the government shifted incentives to stimulate upgrading and higher-value-added activities from the 1990s. Considerable changes have since occurred in the technological dynamics of ﬁrms, as both foreign afﬁliates and local ﬁrms transformed operations to meet external competition and beneﬁt from the incentive structure offered by the government. The successful development of a dynamic cluster in the state of Penang, which includes a range of local supplier ﬁrms, is now well documented (Rasiah, 1994, 1995, 1996, 2002b; Best and Rasiah, 2003; Narayanan and Lai, 2000; Mohd Nazari, 2001; Arifﬁn and Bell, 1999; Arifﬁn and Figuiredo, 2003). Related work on other industries has been scarce, although Capanelli (1999) examined supplier networks involving Japanese ﬁrms’ sourcing of auto parts, and Belderbos et al. (2001) analysed linkages generated by Japanese investment in a number of countries that included Malaysia. Hobday (1996) studied innovation activities of multinationals in Malaysia. Although several studies have used dynamic methodologies to assess links between foreign...
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