External Trade and Economic Growth: The Malaysian Experience

Conventional wisdom suggests that exports linked with the expansion of the Malaysian manufacturing sector have brought about impressive rates of economic growth (and hence economic development) for Malaysia. The notion that export expansion could serve as an engine of growth in both developed and developing economies has been explored by economists since the late 1950s. Kindleberger (1962), Beckerman (1962), Lamfalussy (1963) and Chen (1977) have attempted to provide some theoretical links between an expansion of exports and economic growth. Kindleberger argues that an export expansion could promote investment, and cost-reducing innovations and economies of scale in production. Beckerman hypothesizes that, faced with the prospect of an export expansion, entrepreneurs will be motivated to invest more, resulting in greater output and productivity. In stressing the importance of the balance-of-payments position of a country, Lamfalussy maintains that a surplus external payments position arising from increased exports could spur the government to adopt expansionary policies that could encourage domestic investment. Chen (1977) contends that a surge in exports could aid in the financing of imports of capital goods that augments capital formation or accumulation.