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The growth of China and India: implications and policy reform options for Malaysia

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  • Elena Ianchovichina
  • Maros Ivanic
  • Will Martin

Abstract

This study explores the trade-related impacts of rapid growth of China and India on the Malaysian economy and evaluates policy options to better position Malaysia to take advantage of these changes. Higher growth in China and India is likely to raise Malaysia's national income and to expand Malaysia's natural resource and agricultural exports, while putting downward pressure on exports from some manufacturing and service sectors. Increases in the quality and variety of exports from China and India are likely to increase substantially the overall gains to Malaysia. The expansion of the natural resource sectors and the contraction of manufacturing and services reflect a Dutch-disease effect that will raise the importance of policies to facilitate adaptation to the changing world economy and improve competitiveness. Most-favoured-nation (MFN) liberalisation would increase welfare, and, by increasing competitiveness, raise output and exports of key industries. Preferential liberalisation with India and completely free trade with China would provide greater market access gains than MFN reform, but neither would be as effective in increasing income as MFN liberalisation, and free trade agreements would lead to greater competitive pressure on many of Malaysia's industries than MFN liberalisation. Increased investments in education and infrastructure could boost manufacturing and services sectors in Malaysia, while improving trade logistics would benefit sectors with high transport costs, including the agricultural and resource-based industries. Copyright © 2010 The Authors. Journal compilation © 2010 Crawford School of Economics and Government, The Australian National University and Blackwell Publishing Asia Pty Ltd..

Suggested Citation

  • Elena Ianchovichina & Maros Ivanic & Will Martin, 2010. "The growth of China and India: implications and policy reform options for Malaysia," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 24(2), pages 117-141, November.
  • Handle: RePEc:bla:apacel:v:24:y:2010:i:2:p:117-141
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    File URL: http://hdl.handle.net/10.1111/j.1467-8411.2010.01263.x
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    References listed on IDEAS

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    1. Ianchovichina, Elena, 2004. "Trade policy analysis in the presence of duty drawbacks," Journal of Policy Modeling, Elsevier, vol. 26(3), pages 353-371, April.
    2. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
    3. L. Alan Winters & Shahid Yusuf, 2007. "Dancing with the Giants: China, India, and the Global Economy," World Bank Publications, The World Bank, number 6632.
    4. Will Martin & Elena Ianchovichina & Betina Dimaranan, 2008. "Economic development in emerging Asian markets: implications for Europe," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 35(3), pages 303-330, September.
    5. Hertel, Thomas, 1997. "Global Trade Analysis: Modeling and applications," GTAP Books, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, number 7685.
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