Globalization of Malaysian Economy Assignment

Globalization of Malaysian Economy Assignment Words: 743

The Globalization of the Malaysian Economy Mohammed Shakur Economic ‘globalization’ is generally defined as the openness, integration, and interdependence of various economies, whereby economic activities, products, services, capital, intellectual properties and investments are flowed across borders; whereby global resources are operated internationally.

Malaysia showed her commitment in accepting the challenges of globalization by joining the General Agreement on Tariffs and Trade (GATT), and further ratified the establishment of the World Trade Organization (WTO) on 6 September 1994 (to replace the GATT with effect from 1 January 1995). So far, globalization has yielded multiple effects to the Malaysian economy, both positive and negative. Since Malaysia’s independence, she has been since one of the most globalized developing countries.

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Hence, globalization is claimed to be the major factor to Malaysia’s phenomenal economic development and growth. As Anwar Ibrahim once mentioned, “Globalization has done us a good service, particularly in the economic sphere, a sphere in which the table has been turned, with the denominator fearing the loss of his domination. ” In essence to liberalize trade, Malaysia offered to reduce tariffs on 79% of imports in 1992, and converted non-tariff measures into tariffs, mainly for import licenses involving approval permits (APs).

With these measures, Malaysia benefited from increased manufactured exports and improved consumer welfare. These measures also saw her trade to Gross Domestic Product (GDP) ratio rising, and index of trade liberalization decreasing, indicating the increase in her economic liberalization year-by-year. In addition, several globalization steps in the agricultural market, such as reducing most of the major agricultural products’ tariffs by 35%, and converting all non-tariff import regulatory measures to tariffs have improved the access of this sector to markets for manufactured exports.

On the other hand, globalization has been claimed to be a threat (from developed countries) to developing countries’ autonomy, both economically and politically. As stated by the Mexican President, Ernesto Zedillo Ponce de Leon in the recently held World Economic Forum in Davos, “The motives for ‘globalphobia’ had more to do with vested interests and fears of competition than any real altruism or concern for developing countries. Hence, globalization (particularly in the financial sector) is once blamed to be the nuisance behind the 1997-98 crisis. Subsequently, it was extended to the implementation of the ASEAN Free Trade Agreement (AFTA), which is claimed to result in an increase in income inequality and poverty within the country, which may then lead to the collapse of the local small and medium-sized industries (SMI).

Plus, the phasing out of the Multi-Fiber Agreement (MFA) by 1996 (in accordance to the GATT) would adversely reduce Malaysian markets in textile/clothing to the developed countries due to incompetitiveness. In addition, the economic liberalization has indirectly made the economy increasingly susceptible to external shocks, and undermined the expansion of domestic industrial capacity and capability. Terms-of-trade (TOT) has declined severely, provoked by the decline in TOT for primary commodity and manufactured products.

This saw Malaysia incurring trading losses from RM 809 million in 1961 to RM 53,691 million in 1997, and in total led to a decrease in the export purchasing power, and reduced the quantity of imports into the country. The establishment of the Trade-Related Investment Measures (TRIMs) and Trade-Related Intellectual Property Rights (TRIPs) further deepened the disadvantage of Malaysia to developed countries. Although the TRIMs has practically increased the foreign direct investment (FDI) into Malaysia (manufacturing: RM 1,880. million in 1971-79 to RM 80,870. 4 million in 1990-94), it indirectly eliminated any investment conditions favoring domestic industries, benefiting only transnational corporations’ (TNCs) interest and leverage, usually at the expense of national reign. The establishment of TRIPs then tightened the monopolies of TNCs over various technologies, enhanced the technology superiority of the developed nations (whereby most TNCs originated from), and practically limited technology transfers.

The impact of TRIPs was envisaged in Malaysia’s pharmaceutical industry, whereby price of drugs increased between 6-110%, and availability of new drugs and medicines was constrained. To add further impact, the establishment of the General Agreement on Trade in Services (GATs), whereby the ‘most-favored-treatment’ (MFN) is extended to all participating nations and the World Trade Organization (WTO), whereby innovations were established for effective implementation of the GATT, places Malaysia into deeper handicap compared to developed nations.

In sum, globalization can be viewed as a double-edge sword, yielding advantages or disadvantages to the Malaysian economy, depending on the approach. Thus, globalization must be approached rationally, moderately and selectively, rather than whole-heartedly as most people believe it should be.