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ISEAS Working Papers on Economics and Finance





ISEAS Working Papers on Economics and Finance

Chinese Investments in Malaysia: Synthesizing the Evidence Ten Years into the BRI, December 2023. The launch of the BRI in 2013 raised the interests of Chinese investors in Malaysia. However, views of the BRI in Malaysia are often based on a few mega projects, which are financed by federal loans. This lends a misleading view that Chinese investments are motivated by geoeconomic interests alone rather than commercial interests. This study synthesizes the existing evidence on Chinese investments in Malaysia, ten years into the BRI, using an Antecedent, FDI Decision and Outcome (ADO) framework. It seeks to shed light on the nature, drivers, and motivations as well as some of the outcomes of these investments. It is found that Chinese investments in Malaysia are diverse in terms of sectoral coverage, drivers, and entry modes while the long-term impact on technology transfer remains unclear.

Human Capital, Amenities and Trade: The Case of Malaysia, September 2023. Human capital plays an increasingly important role in economies undergoing structural transformation that involves technological upgrading and sustained trade competitiveness. Both production and consumption amenities are essential to develop, attract and support a workforce with high human capital. Different types of production and consumption amenities are relevant for different kinds of activities at various locations. As human capital growth is likely to be accompanied by worsening inequality, complementary policies are needed to promote inclusiveness without dampening human capital development.

Unbundling Regimes and Structural Transformation in Malaysia, August 2023. Technological changes have significant transformative effects on economic activities. The waves of technological innovations in transport and ICT have provided opportunities for globalisation. Malaysia has levied the first unbundling - enabled by lowering of transport costs - to industrialise for five decades. The ICT-driven second unbundling is proving to be more challenging for the country’s manufacturing competitiveness. Weaknesses in the linkages within the technology-services-GVC nexus is a structural weakness that needs to be overcome. This is crucial for effective participation in the third-unbundling.

The Belt and Road Initiative in Cambodia: Costs and Benefits, Real and Perceived, March 2023. China is Cambodia’s largest bilateral donor, lender, investor, and trading partner. Economic relations have been strengthened by Cambodia’s active participation in the Belt and Road Initiative (BRI). Participating in the BRI has costs and benefits. It has addressed infrastructure deficits, reducing trade and transport costs, supporting productivity and economic growth. This has improved living conditions and reduced poverty. On the negative side, there are concerns over environmental decay, land grabbing, and associated losses in livelihoods. Benefits appear to outweigh costs in Cambodia. Nevertheless, China is trying to improve the environmental, social and financial sustainability of BRI investments, following international criticisms...

Real Exchange Rate and Firm Productivity: The Case of Vietnamese Manufacturing, December 2022. This study investigates the relationship between the real exchange rate and firm productivity. Using the difference-in-differences methodology, a persistent real appreciation in VND has a positive effect on firm productivity in the Vietnamese manufacturing sector. One of the mechanisms that could explain this effect is that real appreciation boosts firm productivity through R&D. Small and medium-sized firms benefit more from real appreciation than large firms.

Strategic Policies for Digital Economic Transformation: The Case of Malaysia, November 2022. Malaysia’s first attempt at digital economic transformation began in the mid-1990s and lasted for some 15 years. The Multimedia Super Corridor has some initial success but underachieved in some areas. The second phase of strategic policies took place in the period 2016-2021 with the launch of four successive policies and plans dealing with e-commerce, 4IR manufacturing and digital economy. The legal and regulatory landscape for the digital economy has also evolved. Significant challenges lie ahead given the prevailing digital divide and unevenness in ICT adoption across industries.

The Political Economy of Education in Myanmar: Recorrecting the Past, Redirecting the Present and Reengaging the Future, September 2022. Myanmar’s education sector has been consistently starved of investments and resources for many decades. Episodes of political turbulence have brought frequent crackdowns on students, with resultant damage to the education system. Myanmar’s 2021 military coup has had dramatic and adverse effects on education at all levels. Parallel educational systems — those of the coup regime, the rival National Unity Government, and ethnic organizations — now operate in Myanmar. The security of everyone involved in Myanmar’s education sector is at risk. As Myanmar moves beyond rentier status, the future of the country’s education sector will depend on forging an education sector compatible with diversity, access to modern technologies, and on educated Myanmar migrants in the diaspora.

Promoting Cross-Border Connectivity in Asia: The Role of the Asian Development Bank, September 2022. Improvements in all forms of connectivity increases a country’s competitiveness by reducing trade costs, which in turn affects trade and investment flows, and economic development. Despite significant progress, gaps in both hard and soft infrastructure remain in Asia. Cross-border connectivity (CBC) projects can generate significant benefits that cannot be realised through national initiatives alone. ADB and other international financial institutions (IFIs) have played a critical role in filling the gap. However, unless capacity utilisation is increased by software related improvements, the borrowings cannot be justified. The digital economy will also require new types of connectivity due to new modes of service delivery, and IFIs must respond.

Determinants of COVID-19 Vaccine Rollouts in Southeast Asia, September 2022. The emergence of the Covid-19 pandemic necessitated the administration of safe and effective vaccines to achieve herd immunity. This paper examines the key determinants of vaccine rollout in Southeast Asia, using a supply and demand model. The supply of vaccines in each country depends on vaccine procurement, state capacity, and the logistics infrastructure while demand is driven by vaccine acceptance. All countries utilized a multiple sourcing strategy for procurement. Digital technology facilitated the roll-out of vaccination and the issuance of digital vaccination certificates. Nevertheless, logistic challenges and vaccine hesitancy continue to dog Indonesia and Philippines, so that both have yet to achieve the WHO targeted 70% vaccination rate by June 2022. Myanmar’s internal problems continue to hold up its vaccination rates.

Examining the Drivers of Changes in Mean Earning and Earning Inequality in Indonesia, August 2022. This paper examines the main drivers behind changes in mean earning and earning inequality in Indonesia between 2001/2 and 2018. During this period, there was an increase in workers’ education level, average age, job quality, and mean earnings. As more women participate in the labor market and women earn lower wages than men, higher female labor force participation lowered mean earning. For the overall period, the decline in educational returns at all levels of education contributed negatively to earnings. Gini index increased during this period, driven by education distribution effect and spatial location premium effect...

ASEAN’s Newer Member Countries in Two Financial Crises: Impact, Response and Lessons, April 2022. ASEAN has been through two major financial crises in the last quarter century: the 1997-98 Asian Financial Crisis (AFC) and the 2008-09 Global Financial Crisis (GFC). Although there is a voluminous literature covering the original five members, it has largely ignored the newer members – Brunei Darussalam, Cambodia, Lao PDR, Myanmar and Vietnam (BCLMV). For the first time, a systematic analysis of the experience of the newer members of ASEAN relating to the AFC and the GFC focusing on impact, policy response and lessons is provided. Their participation in regional financial cooperation initiatives in helping prevent or mitigate the impact of future crises, and how these initiatives need to be enhanced to better serve them is also considered.

The WTO’s 2020 Trade Policy Review for Indonesia and Thailand: A Comparative Assessment, November 2021. This paper provides an analytical survey of trade policy in Indonesia and Thailand, in the context of the key findings of the WTO’s 2020 Trade Policy Reviews. These are historically dynamic economies that are integrated within the outward-looking ASEAN protocols and the China-centred East Asian trade and investment networks. Over the past decade, there have been no major changes in the two countries’ trade and commercial policy settings, with Thailand maintaining its more open economic settings and Indonesia continuing its more hesitant embrace of globalization. The major drivers of domestic policy settings have therefore been global factors, including the continuing rise both of China in the regional and global economies and of the increasingly China-centred global supply chains. Both WTO reports provide comprehensive examinations of trade patterns and policies, although there is room to strengthen the analytical foundations of future reports.

How Do Natural Disasters Change Consumption Behaviour? Estimates and Policy Responses from Thailand and the Philippines, September 2021. This study examines the effects of natural disasters on consumption in Thailand and the Philippines, using three large natural disasters for each country. A decline in consumption is observed after natural disaster in Thailand. This decline stems from a reduction in expenditures of the service sector including recreation, restaurants, and hotels, though the decline is partially offset by increased spending on non-durable goods. For the Philippines, declines in overall consumer spending are observed in response to natural disasters with no specific sectoral responses in sample. The policy implications of natural disasters are then discussed in the final part of the paper...

Pandemic Fallout, Disruptive Technologies, and Divergent Demographics: Policy Challenges Facing Countries in the Indo-Pacific, August 2021. New variants of the coronavirus are producing the worst outbreaks in many countries in the Indo-Pacific. Progress with vaccine rollouts has been uneven, further contributing to inequality of outcomes. The pandemic could have lasting effects by reinforcing nationalism, protectionism, and other trends that are already undermining globalisation. The most serious challenge posed by a pandemic induced acceleration towards a digital economy is the disruption to labour markets, made worse by divergent demographic trends in the region. Policies that increase factor mobility can narrow differences in capital-labour ratios and assist in productivity catch-up to promote more inclusive growth. Since commodity movements can substitute for factor movements, regional initiatives that iberalise trade can also reduce adjustment costs. Investing in a skilled and flexible workforce remains the long-term remedy...

Fifty Years of Malaysia’s New Economic Policy: Three Chapters with No Conclusion, July 2021. The New Economic Policy (NEP) which focused on poverty reduction and social restructuring has transformed Malaysia since 1971. Pro-Bumiputera affirmative action was intensively pursued and has continuously faced pushback, with heightened debate at key junctures. The NEP was marred by gaps and omissions, notably its ambiguity on policy mechanisms and long-term implications, and inordinate emphasis on Bumiputera equity ownership. Broader discourses have imbibed these elements and tend to be more selective than systematic in policy critique. During the late 1980s, rousing deliberations on the successor to the NEP settled on a growth-oriented strategy that basically retained the NEP framework and extended ethnicity-driven compromises. Since 2010, notions of reform and alternatives to the NEP’s affirmative action programme have been propagated, which despite bold proclamations, again amount to partial and selective – not comprehensive – change. Affirmative action presently drifts along, with minor modifications and incoherent reform rhetoric stemming from conflation of the NEP’s two prongs...

Global Supply Chains and the Regional Comprehensive Economic Partnership: Who Benefits? June 2021. The recently signed Regional Comprehensive Economic Partnership (RCEP) promises to expand trade substantially for the 15 participating countries. This study unpacks the differential benefits of free trade agreements by drawing on insights from the emerging research program on the politics of global production networks and value chains. A firm’s ability to benefit from trade agreements is a function of the firm’s degree of supply chain linkages with partner countries. Leveraging on an original survey of more than 500 firms in China, the empirical analyses show that the more backward and forward supply chain linkages with RCEP countries a firm has, the more likely it is going to anticipate positive impact from the RCEP. Furthermore, these results hold even among exporters. These findings enrich our understanding on the political economy of preferential trade liberalization and global supply chains and offer policy suggestions for member countries hoping to maximize benefits for their businesses from the largest trade agreement in the world today...

Growth Resilience to Large External Shocks in Emerging Asia: Measuring Impact of Natural Disasters and Implications for COVID-19, May 2021. This study examines the extent to which Emerging Asian countries show resilience to large external shocks. Its main objective is to estimate the impact of large-scale natural disasters (LNDs). Recent large-scale natural disasters (LNDs) in four Emerging Asian countries: China, India, Indonesia and the Philippines are examined. LNDs have a large negative impact on GDP growth in India, Thailand and the Philippines, although the speed at which the impact wanes differs, with a more persistent impact in the Philippines. Growth resilience to large external shocks will be determined by economic systems and policy considerations. These analyses will provide a useful reference to consider the impact of COVID-19 pandemic.

The Impact of the Rise in Chinese Imports on Firms’ Performance: A Case Study on Manufacturing Firms in Thailand and the Philippines, April 2021. The rapid rise of Chinese trade in the world today warrants an examination of its effects on firms’ performance. Using firm level data from Thailand and the Philippines, this study analyses the impact of an increase in Chinese import shares on the firms’ profitability, sales, costs, innovative activity and labour productivity. The results revealed a negative impact on the firms’ profitability, sales and costs. Additionally, labour productivity in terms of added value per cost of worker increased with higher import share. The impact on manufacturing firms alone was similar, except for a positive impact on productivity in terms of both added value and sales...

Global Trends and Malaysia’s Automotive Sector: Ambitions vs. Reality, March 2021. The paper seeks to examine the development of the Malaysian automotive sector in the midst of rapid global changes in technology, consumer preferences and sustainability concerns. The sector represents a case of infant industry protection which includes, among its objectives, the state’s aspiration to nurture Bumiputera entrepreneurs as national champions for the sector. Despite close to three decades of protection, the two national car projects continue to depend on foreign partners for technology support. The National Automotive Policies (NAPs) strive to push the sector towards the technology frontier with foreign and domestic investments while seeking to be a regional hub and grooming national Bumiputera champions...

Using Regionalism for Globalisation: The ASEAN Way, February 2021. In assessing regionalism, it has become customary to look to the European experience to serve as a benchmark against which all other regional integration programs are judged. But ASEAN is different. Compared to Europe, it is outward- rather than inward-looking, market rather than government driven, and institution light rather than heavy. These differences reflect the very different motivations and objectives of the two regional programs. ASEAN’s success lies in its almost unique achievement of using regionalism for globalisation. The metrics that we use to assess regionalism must reflect true objectives, even if they lie below the surface. Widely used indicators such as shares of intra-regional trade and investment not only fail to capture the real story, but they can point in the wrong direction.

The Prospects and Dangers of Algorithmic Credit Scoring in Vietnam: Regulating a Legal Blindspot, January 2021. Artificial intelligence (AI) and big data are transforming the credit market in Vietnam. Lenders increasingly use ‘algorithmic credit scoring’ to assess borrowers’ creditworthiness or likelihood and willingness to repay loan. This technology gleans non-traditional data from smartphones and analyses them through machine learning algorithms. Algorithmic credit scoring promises greater efficiency, accuracy, cost-effectiveness, and speed in predicting risk compared to traditional credit scoring systems that are based on economic data and human discretion...

GVCs and Premature Deindustrialization in Malaysia, December 2020. Malaysia has experienced premature deindustrialization since the early 1990s. The decline in the relative contribution of manufacturing to the economy has been underpinned by changes in the key component industries of the electronic, electrical and machinery industries. The relative decline in manufacturing has also been accompanied by a decline in the country’s participation in global value chains (GVCs). This is particularly true for backward GVC participation. Macro-level evidence suggests that the decline in export growth is likely amplified by reductions in the foreign value added in the manufacturing sector. Micro-level evidence points to weaknesses in terms of human capital and technology.

The BRI in Malaysia’s Port Sector: Drivers of Success and Failure. November 2020. The Belt and Road Initiative (BRI) has been characterised as a large-scale initiative to boost the movement of goods and services, capital, and people from China to Southeast Asia and beyond. Transport and logistics are a key aspect of this enterprise, with many projects focusing on railways, road networks, and ports receiving priority attention. However, BRI-related initiatives are often cast in binary terms, with agency and autonomy almost uniquely ascribed to China-based firms and funders, and very little attributed to host country agents or their interests. Since 2013, Malaysia has received substantial inflows of BRI-related funds for infrastructure, particularly railways and ports...

The Vulnerability of Jobs to COVID-19: The Case of Malaysia, November 2020. Malaysia’s economy has been adversely affected by COVID-19 and the subsequent mobility restrictions implemented to flatten the curve of the pandemic. This study estimates the extent and distribution of jobs most vulnerable to COVID-19. It finds that about 64.5 percent of jobs in Malaysia cannot be performed from home, after adjusting for internet access while about 50.9 percent of jobs require high levels of physical proximity. These jobs are those that are most vulnerable to COVID-19, particularly if strict mobility restrictions are reinstated. Workers most at risk are primarily those that were already vulnerable before the crisis due to their relatively low education, low level of income and advanced or very young age. Jobs in less developed regions of Malaysia are also particularly vulnerable. Against this backdrop, the study argues that proactive social protection and jobs policies are needed to mitigate the employment impacts of COVID-19 in Malaysia...

Chinese Investments in Industrial Parks: Indonesia and Malaysia Compared, September 2020. Indonesia and Malaysia are keen to use Chinese investments in industrial parks to foster industrial development in their respective countries. This paper seeks to compare Chinese investments in two industrial parks. Specifically, it analyses changes made in the investment climate in each country to facilitate inflows of Chinese investments for the development of the Indonesian-Morowali Industrial Park (IMIP) and the Malaysia-China Industrial Park (MCKIP). Investment climate refers to the FDI institutions in a country that are used for facilitating foreign investments. For Chinese investments in industrial parks, a pertinent question to ask is whether these investments are privileged in terms of FDI institutional arrangements and their differences from the existing investment institutional arrangements in a country. The paper finds that Indonesia and Malaysia made special arrangements to facilitate Chinese investments in the two parks although differences also abound in the way FDI is facilitated.

COVID-19 and the Poor, September 2020, September 2020. COVID-19 not only highlights existing inequalities, it exacerbates them. Not only do the poor have higher COVID-19 infection and mortality rates, they suffer disproportionately from curtailment measures. As governments try and flatten the infection curve, the misery curve measuring the loss of incomes, livelihoods and lives has been rising. These costs tend to accelerate the longer the lockdown is in place, contributing to an increase in violations that can reduce the effectiveness of the measure itself. In countries without broad-based safety nets, it is no longer a choice between lives and livelihoods because they are the same for the poor. While developed nations debate the trade-off between saving lives and destroying livelihoods, poor countries must consider the trade-off between lives lost through destroyed livelihoods and lives lost to the virus. These ground realities suggest that targeted, time-bound measures rather than prolonged general lockdowns should be considered in poor countries, should infections start rising, while increasing targeted testing.

The Landscape of Pricing and Algorithmic Pricing, August 2020. Algorithmic pricing is the practice of setting prices using computer programs. Understanding the foundations of pricing practices is fundamental to an assessment of the nature and potential of algorithmic pricing. Prices can be set in a number of ways and the practice of price setting has been examined from different and sometimes overlapping disciplinary perspectives – economics, marketing and operations research. The three key activities in price setting are data collection, demand analysis and optimization. Computer algorithms are used in these activities but they may not be fully integrated in practice. The organizational adoption of algorithmic pricing may assume different forms depending on the cost-benefit calculus across different components of price-setting activities...

Changes in the Demographic Structure and Economic Growth, July 2020. The population of East and Southeast Asia has been ageing rapidly and will begin to decline ahead of other regions by 2040. By 2060, the elderly will comprise 40% of their total population, thus making them ‘super-aged’ societies. These regions are undergoing major demographic structure changes due to a rapid decline in birth rate and extension of life expectancy. While increased life expectancy and a lower percentage of youth population will have a positive impact on the economic growth in the short and long terms, a higher percentage of older people will have a negative impact in the long term. Additionally, growth in the labour force has a positive impact on the short-term and long-term economic growth. While ageing population will slow down economic growth in the long term, it is possible that this decline could be balanced by a higher labour force growth rate. Surviving in a super-aged society requires policies that proactively enhance economic growth...

When Does Trade Reduce Poverty? Revisiting the Evidence for East Asia, June 2020. East Asia’s openness to trade is often credited as one of the main drivers behind the region’s impressive gains in economic growth and poverty reduction. In this paper, we examine the literature to determine whether there is a sound theoretical and empirical basis for this presumed relationship between trade and poverty reduction. Like many other studies on this topic, we find that the linkages are not automatic; the impact of trade on poverty is highly context-specific, and many factors come into play. Complementary policies are necessary to maximise trade’s potential impact on poverty reduction. We also explore the role of Aid-for-Trade in addressing specific trade-related capacity constraints which prevent developing countries from maximising the benefits from trade.

Economic Corridors in Southeast Asia: Success Factors, Impacts and Policy, May 2020. Economic corridors have gained popularity as a potentially important instrument in the development and transformation of low and middle income economies. But why have some countries had more success with them than others? What role does governance, institutions, finance and policy frameworks play in determining their success? How can we measure their impacts? We try and answer these questions by looking closely at, and drawing lessons from, two case studies of successful corridors in Asia – Malaysia and Thailand. A key conclusion is that economic corridors are more likely to succeed with greater domestic spillovers when the physical and policy infrastructure are conducive.

Industry 4.0 Policies in Thailand, February 2020. The Thai government has implemented a number of policies to harness the potential of the fourth industrial revolution (Industry 4.0). These policies can be categorized into three broad categories, namely, digital infrastructure, skill formation, and target industries. As is often observed for other policies in Thailand, the policy coverage for Industry 4.0 is too broad. Many aspects are included without a clear prioritisation. There is no effective mechanism to assess these policies and their implementation largely depends on government agencies’ preferences. The existing assessment mechanism induces these agencies to undertake easy-to-achieve activities such as training...

Determinants of E-Commerce Adoption and Utilisation by SMEs in Thailand, January 2020. This study empirically investigates the factors and barriers which hinder e-commerce adoption and utilisation levels by Thai SMEs in the food and beverage and retail industries. Older SMEs are likely to have lower levels of e-commerce utilisation. Larger SMEs are more likely to adopt e-commerce. Social media and website are significantly drivers of e-commerce utilisation levels. Food delivery platforms are crucial in enhancing higher e-commerce utilisation levels in the food and beverage industry. Smartphones are found to be a cost-effective tools for e-commerce transactions. The most significant barriers which can hinder the e-commerce adoption are customers’ knowledge of e-commerce and internet security...

Economic Reforms in the Aftermath of Regime Change in Malaysia, October 2019. The 14th General Election in May 2018 brought about an unexpected change in political rule in Malaysia for the first time since the country’s independence in 1957. In its first year of rule, the new Pakatan Harapan-led government implemented several populist economic policies that were drawn from its election manifesto. While these policies may have moderated populist politics to some extent, they have also weakened the government’s fiscal capacity. Ethnic fragmentation and a strengthened opposition alliance have also made it difficult for the new government to implement its ambitious institutional reform agenda. The new government needs to formulate and implement a new growth strategy that overcomes some of the existing structural weakness of the economy...

Agglomeration, Human Capital and Foreign Labour: The Case of Malaysia, September 2019. Trade, FDI and foreign labour have been key factors in the growth and transformation of Malaysia. The deindustrialization of the Malaysian economy has been attributed by some to the excessive dependence on the relatively low-skilled foreign labour in the country. This study finds that there is some evidence that foreign labour weakens the relationship between labour productivity and agglomeration. This is likely to take place through the weakening of human capital-effects by low-skilled foreign labour. Policies aimed at managing foreign labour need to take into account geographical agglomeration effects...

Firm Performance and Structural Change: The Case of Thailand, August 2019. A key aspect of the development process is structural change. For most countries, this takes the form of a decline in the contribution of the agriculture sector in the economy accompanied by the rise of the shares of manufacturing and services. The theories and empirics of structural change have mostly focused on economy-wide and sectoral-level analysis. There is a scarcity of studies on the microeconomics of structural change due to the lack of long-term panel data at the firm level. This study undertakes a microeconometric analysis of structural change by studying how firm-level performance as defined by ROA and ROE is affected by structural change in the Thai economy. A key finding of this study is that trends in the financial performance of firms provide a useful perspective of the micro-level impact of structural change in the economy.

The Leniency Programme in Malaysia’s Competition Regime: A Critical Evaluation, July 2019. Malaysia’s competition law came into force in January 2012. Detailed guidelines on a leniency programme were published in October 2014. Despite the leniency programme being designed based on best-practices found in more mature competition regimes and ICN, it has been under-utilised in the cartel cases investigated in Malaysia. This under-utilisation of the programme could be due to the enforcement agency having too much discretionary powers. Another reason could be the lack of immunization from civil proceedings. De-facto government oversight and spillover from deterioration in the country’s state of governance in the past could also have affected the public’s perception of quasi-independent commissions. This is reflected in the perceptions of the business community on courts and corruption in the country.

Smallholders and the Making of Malaysia’s Oil Palm Industry, June 2019. As part of efforts to curb the oil palm industry’s harmful socio-environmental impacts in Southeast Asia, scholars and policymakers have been showing more interest in independent smallholder farming arrangements. Smallholders, however, continue to encounter significant barriers to entry. Focusing on Southeast Asia, scholars have often claimed that oil palms are naturally endowed with processing cost economies favoring large-scale production arrangements. With their limited access to capital, technology, and skills, smallholders are disadvantaged relative to estates. The history of Peninsular Malaysia, with particular reference to Johor, suggests a different argument...

The Game of Go: Bounded Rationality and Artificial Intelligence, May 2019. The goal of this essay is to examine the nature and relationship between bounded rationality and artificial intelligence (AI) in the context of recent developments in the application of AI to two-player zero sum games with perfect information such as Go. This is undertaken by examining the evolution of AI programs for playing Go. Given that bounded rationality is inextricably linked to the nature of the problem to be solved, the complexity of Go is examined using cellular automata (CA).

US-China Trade War: Potential Trade and Investment Spill-overs into Malaysia, May 2019. The trade conflict between the US and China has the potential to affect Malaysia’s trade with both countries as both are important trading partners. The imposition of safeguard tariffs by the US will affect Malaysia’s solar exports to the US though its exact impact is unclear due to the complicated implementation of this tariff. The tariffs imposed on China raises the possibility of trade and investment diversion to Malaysia. Re-exports play an important role in Malaysia’s export adjustments to the US and China from 2017 to 2018. The possibility of investment diversion from China is high given the growing presence of China’s investment in Malaysia since the announcement of the Belt and Road Initiative (BRI).

Manufacturing Performance and Services Inputs: Evidence from Malaysia, February 2019. The Malaysian economy has been deindustrializing since the late 1990s. The relative decline of the country’s export-oriented manufacturing sector has led to a decline in the trade ratio. This could reflect a decline in the country’s participation in manufacturing global value chains. The services sector makes important contributions to the performance of the manufacturing
sector in terms of productivity and exporting. Therefore, any policy attempt to enhance manufacturing performance is likely to require improvements in the performance of the services sector. This is particularly important as there is evidence that the country’s manufacturing sector is increasingly dependent on services generated domestically.

Economic Voting and the End of Dominant Party Rule in Malaysia, February 2019. This essay seeks to empirically examine economic and non-economic factors that determined the outcomes of the fourteenth general election in Malaysia. In the election, the incumbent coalition Barisan Nasional (BN) which had ruled the country since its independence in 1957 was defeated. Relatively robust economic growth in months prior to the elections failed to bolster voter support for the incumbent coalition. Unemployment and inequality further eroded voter support for BN. The election also saw a decline in the support of the Bumiputra community and East Malaysian voters for BN. A key factor in the end of BN rule was the defections of elite politicians from UMNO. Mahathir Mohamad, a former Prime Minister and UMNO President, together with other former UMNO stalwarts joined the opposition coalition and mobilized voters against BN.

Batam: Life after the FTZ? October 2018. Once an island of high-tech production and turbo-charged growth, Batam’s economic fortunes have waned of late. The traditional pillars of the manufacturing sector have contracted, investment levels have fallen, the island’s growth rate is below the national average, and unemployment has increased sharply. In response, policy-makers are promoting the development of new sectors to diversify the island’s economic base. There are debates on whether Batam’s status should be changed from a Free Trade Zone (FTZ) to a Special Economic Zone (SEZ) to draw in more investment. This paper aims to contribute to the debates on how to revitalize the island’s economy...

Education in Malaysia Towards a Developed Nation, September 2018 . Education plays a key role in realising Malaysia’s aspirations to be a developed nation. This paper provides a critical assessment of the state of education in Malaysia. The issues that will be discussed in this paper includes the country’s current ethos and philosophy of education, technical and vocational education (TVET), technology and flexible learning, and governance and financing of higher education. The paper also highlights critical omissions in the current Eleventh Malaysia Plan.

SME Policies and Performance in Malaysia, July 2018 This study aims to achieve two major objectives. First, to assess policies and initiatives implemented for the development of small and medium-sized enterprises (SMEs) in Malaysia from the Eighth Malaysia Plan (2001-2005) to the Eleventh Malaysia Plan (2016-2020) as well as the SME Masterplan (2012-2020). Second, to analyze the performances and contributions of SMEs in Malaysia. The study provides a critical analysis of the adequacy of the Eleventh Malaysia Plan for SME development including whether the targeted goals for SMEs towards 2020 can be achieved. A key highlight of the analysis is the redefinition of SMEs which has greatly affected several indicators that are relevant to the measurement of the achievement of targeted goals. The study utilizes content analysis and the notion of embeddedness to examine the contents of published government reports on the topic of SMEs development and their way forward.

Territorial Complementarities and Competition for Oil and Gas FDI in the SIJORI Growth Triangle, May 2018. After the initial euphoria, the SIJORI Triangle - formed by Singapore, Johor (Malaysia) and Riau Islands (Indonesia) - seems to have been completely forgotten. The growth triangle concept was initiated to enhance foreign investment. This paper aims to explore whether firms in the oil and gas industry are really strategically making use of the different factor endowments accessible in close spatial proximity. Based on FDI data and expert interviews, Singaporean firms are taking strategic advantage of the different factor endowments, especially in storage and offshore equipment manufacturing. However, Johor and Riau Islands still focus on lower value-added activities...

Services Liberalization and Export Quality: Evidence from China, March 2018. Using firm-level export data from China, this paper empirically examines the effect of domestic liberalization of services on exporting firms’ quality upgrading. We examine a number of other trade policies, including: tariffs in export destination countries; and input- and output-tariffs in China. Following China’s accession to the World Trade Organization in December 2001, these trade policies changed substantially during our sample period of 2000 - 2006. Our findings suggest that, of all the policies, reduced input tariffs contributed the most to raising export product quality. Easing of services’ restrictiveness also resulted in improved export product quality, but mainly for foreign owned enterprises.

Industry Dynamics in Growth Triangles: The E&E Industry in SIJORI 25 Years On, November 2017. The SIJORI Growth Triangle, which encompasses Singapore, Johor (Malaysia) and Batam Island (Indonesia), was launched in 1989 as a ‘single investment destination’ offering differing factor endowments in close proximity. Singapore was the ‘core’ of the region with Johor and Batam occupying the land, labour, and resource-intensive ‘non-core’ spaces. During the 1990s, investment flows into the three territories, particularly in the electrical and electronics (E&E) industry, mirrored this division of labour...

The Trans-Pacific Partnership: Origin, Evolution, Special Features, and Economic Implications, October 2017. The Trans-Pacific Partnership (TPP) agreement was signed by its 12 members in February 2016 after concluding its difficult and long negotiations. The TPP is an ambitious agreement with high-level of trade and investment liberalization and comprehensive issue coverage, setting a new standard for global trade. Large economic benefits can be expected from the enactment of the TPP. The ratification of the TPP in its agreed form is not possible because of the withdrawal of the US from the TPP. The paper argues that the TPP without the US, or TPP11, should be pursued by remaining 11 members, to keep the momentum toward trade and investment liberalization and to fight against growing protectionism.

Mind the Gap: Explaining Implementation Shortfalls in the ASEAN Economic Community, September 2017. The ASEAN Economic Community (AEC) is at a critical crossroad in terms of policy implementation. ASEAN announced of a significant achievement rate of 93 per cent at the end of 2015. However, effective implementation, described as policy execution that generated tangible benefits for the end-users in their cross-border activities remained patchy. Following the theoretical discussion on policy implementation, this paper postulates that it was the economic conflicts between countries and between firms of a country that led to a broad and accommodative regional policy document, thereby affecting the course of implementation. As implementation is a national issue, organisational conflicts between government agencies and bureaucrats further distorted the final outcome, and hindered progress towards meaningful implementation.

The TPP: Truths about Power Politics, August 2017. Preferential trade agreements are negotiated by states. By definition, they are political in nature. The more powerful the state involved, the more it can shape the trajectory of trade negotiations. The three stages of the TPP – before the US joined, while the US was a TPP member, and the US withdrawal from TPP – reaffirm this political-economic truth. Political interests often trump economic ones when it comes to trade agreements. This paper analyses the three stages of the TPP using the tools of International Relations. It highlights key political truths that are reaffirmed by each TPP stage...

Dynamics of Ride Sharing Competition, July 2017. This paper studies the dynamics of ride-sharing competition. Ride-sharing is modelled as a spatial two-sided market with heterogeneous passengers and drivers, both located on a Salop (1979) circle. The model is simulated to study four aspects of ride-sharing competition:(i) price distribution and dynamics, (ii) strategic pricing, (iii) fixed pricing vs. surge pricing, and (iv) information-sharing. Dynamic platform competition in a spatial setting can generate distinct and persistent bands of fluctuating prices. Space and stochastic luck can mitigate winner-take-all effects in price competition...

Impact of TPP-11 on Japanese Manufacturing Affiliates in ASEAN, July 2017. This paper discusses how tariff reductions through TPP may affect Japanese manufacturing affiliates in ASEAN countries. Without the U.S., there is some uncertainty in the impact of TPP on the investment and expansion plans of Japanese affiliates in Malaysia and Vietnam’s textile and footwear industries. Similarly, it is also uncertain that Japanese affiliates in ASEAN non-TPP member countries will shrink their business in these industries. In the case of other industries, the TPP-11 will not affect Japanese affiliates because market access will not be different between TPP and non-TPP member countries.

Should Thailand Join the TPP? July 2017. This paper reviews the potential gains and losses for Thailand if the country joins the Trans-Pacific Partnership (TPP). Had the United States remained a member of TPP, the preferential market access to the country would be a major source of gains. However, the intellectual property right (IPRs) provisions in the TPP may have adverse impact on pharmaceutical expenditure in Thailand. While there are other issues covered in TPP, these are likely to be either non-binding constraints (e.g. investment agreement) or having effects that are difficult to be quantified across time and space (e.g. government procurement, environmental agreement). While there is belief that the TPP and cumulative ROO in particular could alter supply chain of production network, this is unlikely to occur due to a number of exceptions in the TPP itself.

The Investment Chapter and ISDS in the TPP: Lessons from Southeast Asia, April 2017. The investment chapter and investor-state dispute settlement provisions in the Trans-Pacific Partnership attracted significant media and public attention. This paper shows that ISDS-backed investment treaty commitments, aimed to liberalising and protecting FDI, are already widespread across Southeast Asian countries. However, these countries have been subjected to comparatively few ISDS claims and (very recently) two adverse treaty-based arbitration awards. Meanwhile, investors from Malaysia and Singapore have initiated claims. This backdrop partly explains not only why those two states and the other existing TPP signatories (Vietnam and Brunei) were willing to agree to ISDS-backed commitments in that FTA. It also makes it quite likely that ISDS provisions are not likely to become deal breakers for countries such as Thailand, the Philippines and even Indonesia in future trade agreements...

Labour Provisions in Trade Agreements with Developing Economies: The Case of TPPA and ASEAN Member Countries, March 2017. Labour provisions have been increasingly included in bilateral and regional trade arrangements. One recent example was the Trans-Pacific Partnership Agreement (TPPA), signed by twelve countries in 2016 but abandoned by the US in early 2017. Even though the ratification of the TPPA remains uncertain, it has set a precedent in trade policy. This is likely to influence the formulation of trade agreements involving ASEAN countries in the future. This paper examines the implications of the TPPA labour chapter in the context of ASEAN countries that have participated in the agreement. It discusses the extent these countries need to undertake domestic reforms in terms of labour rights and standards.

Evolving Paradigms in Regional Development in Malaysia, October 2016. In seeking to foster economic growth, policy-makers in Malaysia have also had to grapple conceptually and operationally with how best to deal with differing income levels in different parts of the country. In addition, this challenge has changed in nature over time, in line with the country’s increasing wealth and urbanization, and as understandings of what regional development is and how it should be pursued have evolved. Over the decades, approaches have shifted away from a sole focus on rural development and an aspatial approach to regional development towards a greater emphasis on urbanization and a deeper understanding of the relationship between location and economic growth...

The Impact of Local Content Requirements on the Indonesian Manufacturing Industry, October 2016. Local content requirements (LCRs) are prohibited under the WTO law as they violate several WTO provisions including the national treatment principle. Nonetheless, many countries, including Indonesia, persistently use LCRs as part of their industrial policies. Countries implement LCRs for various reasons, including to protect local industries; to create employment; to boost export; to enhance local innovation capacity; and to support broader economic development in the country. This paper examines the impact of LCRs in manufacturing sector in Indonesia, with a particular interest on the machinery and transport industries. Since LCRs discourage foreign imports, hence it is expected they may affect firm’s use of imported inputs...

Reassessing Malaysia’s Export Opportunities in the TPP, September 2016. The main economic motivation for forging bilateral, regional and multilateral agreements for Malaysia is to enhance the export opportunities for its firms as it is relatively dependent on trade for supporting growth. There is an extensive literature on the Trans-Pacific Partnership (TPP) since negotiations were started five years ago and this literature continues to grow after the agreement was signed in February 2016. The literature identifies some overall gains for Malaysia and some sectoral gains, especially in textiles and apparel. The objective of this paper is to re-assess these export opportunities, using a comparative country perspective since the TPP has 12 founding members...

Determinants of Singapore’s Outward FDI, February 2016. Outward foreign direct investment (OFDI) has been an important element in Singapore’s economic strategy since the 1990s, with the government providing direct and indirect support to support the internationalization process. Recent OFDI trends indicate that China has become an important destination for Singapore. In ASEAN, Singapore’s main investment markets are Indonesia, Malaysia and Thailand. The Singapore’s OFDI has important sectoral dimensions, supported by evidence from econometric analysis. It is also important to distinguish between OFDI stock and flows. Further research is needed to understand the erratic behavior of flows in the region.

A Review of the Recent Literature on the Institutional Economics Analysis of the Long-Run Performance of Nations, January 2016. This paper reviews the recent (post-2000) literature which assesses the importance of institutions as a factor determining cross-country differences in growth rates or in the contemporary level of “prosperity”. It first sketches how institutional economics has evolved. It then examines critically the methods of analysis employed in the recent literature. The paper finds that this literature has made a major contribution to the analysis of the causes of economic growth but the relative importance of institutions as a determinant of long-run growth and prosperity is still a wide open question.

What Lies Ahead for Malaysian Healthcare? December 2015. Healthcare in Malaysia has been characterised by a strong public sector presence where government hospitals and clinics acted as a primary source of care. The healthcare system has also been lauded as a model for other developing countries to follow as it has succeeded in improving the health status of Malaysians over time. With the rising costs of healthcare over the last three decades, the government is now facing increasing pressures to restructure its healthcare system. Social healthcare insurance, corporatisation, and privatisation have been increasingly seen as possible measures to supplement the current healthcare system dominated by the public sector...

Malaysia’s Protracted Affirmative Action Policy and the Evolving Bumiputera Commercial and Industrial Community, December 2015. This paper examines the evolution of the Bumiputera Commercial and Industrial Community (BCIC) in the context of Malaysia’s protracted affirmative action from 1971 to the present. It explores, on one hand, how the state has responded to the demands of different Malay pressure groups and, on the other, to external shocks arising from economic globalization. These external factors have compelled the state to deregulate and liberalize its economic policies which run contrary to the goal of promoting the development of a BCIC...

(De)centralization and the Missing Middle in Indonesia and Malaysia, September 2015. Indonesia and Malaysia were both initially characterized by a powerful, centralized state apparatus and “soft authoritarianism”. Following the Asian Financial Crisis, they have had very different trajectories. In tandem with a transformative political liberalization process, Indonesia has implemented far-reaching decentralization reforms. Malaysia’s political context has remained relatively static, and it has proceeded to centralize important aspects of governance. Notwithstanding this initial difference, both cases display a notable similarity – the re-scaling of state power has occurred at the expense of the meso-level – provinces in Indonesia and states in Malaysia...

AEC Vision Post-2015: Is an ASEAN Customs Union Feasible? February 2015. This paper explores the feasibility of the ASEAN Economic Community (AEC) moving forward to the next step of economic integration, i.e. towards an ASEAN Customs Union (ACU) post-2015. Effectively, the way to progress towards an ASEAN custom Union is by forming it among ASEAN-9 members with Singapore maintaining its existing zero tariff against non-members, thereby creating a Partial ACU. Using applied general equilibrium modelling exercise based on GTAP, the findings suggest that there are potential net positive welfare gains to be collectively reaped by ASEAN if it moves from an AFTA to a partial ACU post-2015. However, not all ASEAN members will individually gain from such an ACU and members may need to potentially devise a mechanism wherein some member country welfare losses in an ACU can be compensated by the members who gain...

The Regional Comprehensive Economic Partnership: New Paradigm or Old Wine in a New Bottle? November 2014. ASEAN is currently negotiating the Regional Comprehensive Economic Partnership (RCEP) agreement with its six trading partners. The RCEP has the potential to expand into a Free Trade Agreement of the Asia-Pacific (FTAAP) as it intends to harmonise rules and regulations across multiple overlapping trade agreements in the region. However, it faces challenges. The mention of a flexibility principle and the “ASEAN Way” of decision-making has led many to believe that the RCEP will be yet another low-quality trade agreement in the region. As such, the RCEP presents all ASEAN members an opportunity to take a central role in setting the agenda for a region-wide agreement. Hence, ASEAN must make efforts to attain an attractive RCEP vis-a-vis other competing regional agreements. Accordingly, this paper highlights what the RCEP is, how it has emerged and the issues that might affect the agreement’s final quality in order to evaluate it as a new paradigm or a repackaged version of ASEAN’s existing trade agreements.

The Evolution of the Electronics Industry in the SIJORI Cross Border Region, September 2014. In the early 1990s, Singapore, the Malaysian state of Johor, and the Indonesian island of Batam sought to leverage their proximity, differing comparative advantages, and good logistics connections to market themselves as an integrated unit. After an initial phase of enthusiasm and considerable investment from electronics multinationals, attention regarding the cross-border region waned in the wake of the Asian Financial Crisis. Using data from investment authorities in Indonesia and Malaysia, as well as a number of firm interviews, this paper traces the evolution and current status of the electronics industry in Batam and Johor.

The Exporting and Productivity Nexus: Does Firm Size Matter? August 2014. The main purpose of this study is to examine whether the relationship between exporting and productivity differs across firm sizes in the Malaysian manufacturing sector. A firm-level panel data from the Study on Knowledge Content in Economic Sectors in Malaysia (MyKE) is used in the study. Overall, exporters were found to be more productive than non-exporters. This productivity gap becomes less important as firms become larger. There is evidence that the selection process for exporting is binding only for small firms. Policies that are meant to encourage small firms to export need to focus on enhancing human capital and foreign ownership.

1(2005): Rahul Sen, Enhancing Bilateral Economic Linkages Through New Regionalism: The Case of thge Agreement between New Zealand and Singapore for a Closer Economic Partnership (ANZSCEP), 2005

2(2004): Linda Low,
Policy Lessons in Deveopment: Small, Open Economics of Singapore and Abu Dhabi in the United Arab Emirates, 2004

1(2004): Denis Hew and Rahul Sen,
Towards an ASEAN Economic Community: Challenges and Prospectds, 2004

1(2003): Lee Poh Onn, The Water Issue Between Singapore and Malaysia: No Solution in Signt? 2003

5(2002): Arumugam Rajenthran, Malaysia: An Overview of the Legal Framework for Foreign Direct Investment, 2002

4(2002): Arumugam Rajenthran, Indonesia: An Overview of the Legal Framework for Foreign Direct Investment, 2002

3(2002): Ramkishen S. Rajan and Rahul Sen, International Trade in Services in Selected ASEAN Countries: Telecommunications and Finance, 2002

2(2002): Ngiam Kee Jin and Lixia Loh, Developing a Viable Corporate Bond Market: The Singapore Experience, 2002

1 (2002): Tracy Yang, Crisis, Contagion, and East Asian Stock Markets, 2002

1(2001): Tracy Yang and Reza Siregar, An Empirical Examination of the Stock Market Returns in Selected Asia-Pacific Economies in the Pre- and Post-Financial Reform Period, 2001

7(2000): Tracy Yang and Paul Vandenberg, Selected East Asian Stock Markets in the Context of Financial Liberalisation: Prior to the Crisis, 2000

6(2000): Ramkishen S. Rajan and Tracy Yang, Devaluation of the Baht and Economic Contraction in Thailand, 2000

5(2000): Sakulrat Montreevat, Impact of Foreign Entry on the Thai Banking Sector: Initial Stage of Bank Restructuring, 2000

4(2000): Nick J. Freeman, A Regional Platform for Trading Southeast Asian Equities: Viable Option for Lofty 'Red Herring'? 2000

3(2000): Nick J. Freeman and Frank L. Bartels, Portfolio Investment in Southeast Asia's Stock Markets: A Survey of Institutional Investors' Current Perceptions and Practices, 2000

2(2000): Nick J. Freeman, Foreign Portfolio Investors' Approaches to Thailand's Equity Market: Survey Findings and Preliminary Analysis, 2000

1(2000): Nick J. Freeman, Constraints on Thailand's Equity Market as an Allocator of Foreign Investment Capital: Some Implications for Post-Crisis Southeast Asia, 2000

9(1999): Frank L. Bartels and Nick J. Freeman, Multinational Firms and FDI in Southeast Asia: Post-Crisis Perception Changes in the Retail-Oriented Manufacturing Sector, December 1999.

8(1999): Kim Ong-Giger, Japanese IT Development: Implications for FDI in Southeast Asia, September 1999

7(1999): Carolyn L. Gates, ASEAN’s Foreign Economic Relations: An Evolutionary and Neo-Institutional Analysis, May 1999

6(1999): Kim Ong-Giger, Southeast Asian Economies in Crisis: The Emergence of Pax Capitalia, April 1999

5(1999): Tin Maung Maung Than, The Political Economy of Burma’s (Myanmar’s) Development Failure 1948-1988, March 1999

4(1999): Carolyn L. Gates, The East Asian Crisis and Global Integration: Mismanagement and Panic Revisited or a New Beast?, March 1999

3(1999): George Abonyi, Thailand: From Financial Crisis to Economic Renewal, March 1999

2(1999): Anita G. Doraisami, The Malaysian Currency Crisis: Causes, Policy Response and Future Implications, February 1999

1(1999): Myat Thein, Improving Resource Mobilization in Myanmar, January 1999

5(1996): Mya Than, The Golden Quadrangle of Mainland Southeast Asia: A Myanmar Perspective, July 1996

4(1996): Carolyn L. Gates, Enterprise Adjustment and Economic Transformation: Industrial Enterprise Behaviour and Performance in Vietnam during Stabilization and Liberalization, June 1996

3(1996): Helen Hughes, Perspectives for an Integrating World Economy: Implications for Reform and Development, May 1996

2(1996): Reza Y. Siregar, Inflows of Portfolio Investment to Indonesia: Anticipating the Challenges Facing the Management of Macroeconomy, March 1996

1(1996): Nick J. Freeman, Portfolio Investment in Vietnam: Coping Without a Bourse, February 1996


Source: Institute of Southeast Asian Studies, Singapore