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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 wcy@mx.nthu.edu.twwongcy111@gmail.com
Hon-Ngen Fung, Post-graduate and Research Centre, KDU University College, Malaysia, Tel: +60355650531 kennethfung84@gmail.com

JEL Classification: O14, O30, O20, O10

Abstract

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.

Keywords:

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

Acknowledgments

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.

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