Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 32, No. 1, pp.1-22
ISSN: 1225-0279 (Print)
Print publication date 28 Feb 2019
Received 03 Jul 2018 Revised 24 Dec 2018 Accepted 31 Dec 2018

Caught-In or Breaking-Free from the Middle Income Trap: The Case of Malaysia

Chan-Yuan Wong ; Hon-Ngen Fung
Chan-Yuan Wong, Corresponding Author, Institute of Technology Management, National Tsing Hua University, Taiwan, Tel: +886 035742442
Hon-Ngen Fung, Post-graduate and Research Centre, KDU University College, Malaysia, Tel: +60355650531

JEL Classification: O14, O30, O20, O10


Malaysia is among the developing economies that has shown relative promise in breaking its middle income trap (MIT). However, the lack of sophistication of institutions for industrial upgrade and the attainment of productive routines means that many local firms remain self-organized and suffer from the absence of complementarities. This study seeks to understand Malaysia’s position on MIT and compare the country’s current trajectory against newly industrialized economies (e.g., South Korea and Taiwan). This study focuses on five explorations that depict Malaysia’s performance position in achieving developed status: (1) income and foreign direct investment, (2) economic structure, (3) upgrading, (4) social capital, and (5) education. This study argues that the key barriers that prevent Malaysia from exiting MIT stem from the lack of effective measures in terms of social capital to improve education and institutions. Thus, the development of productive routines with instituted inclusive measures to accelerate the upgrading process is crucial to break MIT.


Middle income trap, Malaysia, Political economy, Social capital, Economic upgrading


A previous version of this paper was presented at the 2018 SJE Conference on Political Economy of the Middle-income Trap held in Seoul. The authors are grateful to the editor, referee, and participants for their beneficial comments and suggestions that led to the improvement of this paper.


  • The Sun Daily (Malaysia). “Malaysia on Track to become High Income Nation by 2020.” 2017. Retrieved on 26 September 2018. Available at, .
  • CIDB. Number and Value of Projects Undertaken by Malaysian Contractor in Global Market by Year of Project Awarded 2011-2016, Kuala Lumpur: Construction Industry Development Board Malaysia (CIDB), 2017.
  • Doner, R. F. and B. R. Schneider. “The Middle-Income Trap: More Politics than Economics.” World Politics 68 (No. 4 2016): 608-644. []
  • DOS. Performance of Construction Section Fourth Quarter, 2016. Putrajaya, Malaysia: Department of Statistics, 2017a.
  • DOS. Children Statistics, Malaysia. Putrajaya, Malaysia: Department of Statistics, 2017b.
  • DOS. Time Series Data, Malaysia. Putrajaya, Malaysia: Department of Statistics, 2017c.
  • Federal Reserve Bank of St. Louis (USA). “Getting Caught in the Lowor Middle-Income Trap, 2015.” September 8, 2018. Available at, .
  • Flaaen, A., E. Ghani, and S. Mishra. How to avoid Middle Income Traps? Evidence from Malaysia. The World Bank Policy Research Working Paper, 2013. Retrieved on 26 September 2018. Available at []
  • Foo, G. “Quantifying the Malaysian Brain Drain and an Investigation of Its Key Determinants.” Malaysian Journal of Economic Studies 48 (No. 2 2011): 93–116.
  • Gomez, T., T. Padmanabhan, N. Kamaruddin, S. Bhalla, and F. Fisal. Minister of Finance Incorporated: Ownership and Control of Corporate Malaysia. Selangor, Malaysia: SIRD, 2017. []
  • Hutchinson, F. E. and S. B. Das. Asia and the Middle-income Trap: an Overview. Asia and the Middle-Income Trap. New York, U.S.A.: Routledge, pp. 17-36, 2016. []
  • Im, F. G. and D. Rosenblatt. Middle-Income Traps: A Conceptual and Empirical Survey, the World Bank Policy Research Working Paper 6594, 2013. Retrieved on 08 Sept, 2018. Available at, . []
  • Intarakumnerd, P. “Thailand’s Middle-Income Trap: Firms’ Technological Upgrading and Innovation, and Government Policies.” Seoul Journal of Economics 32 (No. 1 2019): 107-135.
  • ILO. Monthly Earnings. Geneva, Swiss: International Labour Organization, 2018. Retrieved on 8 Sept, 2018. Available at, .
  • Inter Press Services (Italy). “Lessons for the ‘Rest’ from Ersatz Miracles.” December 10, 2018. Available at, .
  • Lee, K. Schumpeterian Analysis of Economic Catch-up: Knowledge, Path-creation, and the Middle-Income Trap. New York, U.S.A.: Cambridge University Press, 2013. []
  • Lee, K., C.-Y. Wong, P. Intarakumnerd, and C. Limapornvanich. “Is the Fourth Industrial Revolution a Window of Opportunity for Upgrading or Reinforcing the Middle-income Trap?: Asian Model of Development in Southeast Asia.” Journal of Economic Policy Reform, forthcoming, 2019. []
  • MIER. Malaysian Economic Outlook. Kuala Lumpur, Malaysia: Malaysian Institute of Economic Research, 2016. Retrieved on 26 September 2018. Available at, .
  • MOSTI. National Survey of R&D in Malaysia, Putrajaya, Malaysia: Ministry of Science, Technology and Innovation, 2016.
  • Ohno, K. Learning to Industrialize: From Given Growth to Policy-aided Value Creation. Oxon, England: Routledge, 2013. []
  • Reuters. “Breakingviews - Malaysia throws Cash into Middle-Income Trap.” November 9, 2017. Available at, .
  • Rock, M. T. Dictators, Democrats, and Development in Southeast Asia: Implications for the Rest. New York, U.S.A.: Oxford University Press, 2017. []
  • Thiruchelvam, K., V. Chandran, B-K. Ng, and C-Y. Wong. Malaysia’s Quest for Innovation: Progress and Lessons Learned. Petaling Jaya, Malaysia: SIRD, 2013.
  • Thiruchelvam, K., VGR. Chandran, B-K. Ng, C-Y. Wong, and C-K. Sam. “Innovation Financing Scheme of Malaysia.” In J. Wonglimpiyarat and P. Intarakumnerd (eds.), Towards Effective Policies for Innovation Financing in Asia: A Comparative Study of Singapore, Taiwan, Malaysia and Thailand. Bangkok, Thailand: Thammasat Printing House, pp. 161-250, 2012.
  • Wong, C-Y., B-K. Ng, A. Shazana, and K-C. Cheong. “Talent and Technological Innovation in Malaysia, with Lessons from China.” In A. Tyson (ed.), The Political Economy of Brain Drain and Talent Capture: Evidence from Malaysia and Singapore. Oxon, England: Routledge, pp. 106-121, 2018. []
  • World Bank. “Robust Recovery, Rising Risks.” East Asia Pacific Economic Update. Vol. 2, pp. 27-43, 2010.
  • World Bank. School Enrolment, Primary (% net), 2016. Retrieved on 15 Sept, 2018. Available at, .