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Malaysia's Economic Growth and Transition to High Income : An Application of the World Bank Long Term Growth Model (LTGM)

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Listed:
  • Devadas,Sharmila
  • Guzman,Jorge P.
  • Kim,Young Eun
  • Loayza,Norman V.
  • Pennings,Steven Michael

Abstract

This paper studies economic growth in Malaysia, with the purpose of assessing the potential to attain the status and characteristics of a high-income country. Future economic growth is simulated under a business-as-usual baseline, where the growth drivers follow their historical or recent trends, and under different scenarios of reform, using the World Bank Long-Term Growth Model (LTGM). Under the business-as-usual baseline, Malaysia's GDP growth is expected to decline from 4.5 to 2.0 percent over the next three decades, following the country's transition to high income in 2024 (which might be delayed due to the effects of COVID-19). This decline is partly due to demographics, but also a declining marginal product of private capital and slowing growth rates of total factor productivity and human capital. Strong reforms are required for Malaysia to grow beyond what is expected based on historical trends, especially for human capital, female labor force participation, and total factor productivity. In the strong reform scenario, based on growth drivers achieving a target corresponding to the 75th percentile of high-income countries, GDP growth is expected to have a substantially higher trajectory, reaching 3.6 percent by 2050.

Suggested Citation

  • Devadas,Sharmila & Guzman,Jorge P. & Kim,Young Eun & Loayza,Norman V. & Pennings,Steven Michael, 2020. "Malaysia's Economic Growth and Transition to High Income : An Application of the World Bank Long Term Growth Model (LTGM)," Policy Research Working Paper Series 9278, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9278
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    References listed on IDEAS

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    1. Przemyslaw Kowalski & Max Büge & Monika Sztajerowska & Matias Egeland, 2013. "State-Owned Enterprises: Trade Effects and Policy Implications," OECD Trade Policy Papers 147, OECD Publishing.
    2. Kraay,Aart C., 2018. "Methodology for a World Bank Human Capital Index," Policy Research Working Paper Series 8593, The World Bank.
    3. Young Eun Kim & Norman V. Loayza, 2019. "Productivity Growth: Patterns and Determinants across the World," Revista Economía, Fondo Editorial - Pontificia Universidad Católica del Perú, vol. 42(84), pages 36-93.
    4. World Bank, "undated". "World Bank East Asia and Pacific Economic Update, April 2020," World Bank Publications - Reports 33477, The World Bank Group.
    5. Devadas,Sharmila & Pennings,Steven Michael, 2018. "Assessing the Effect of Public Capital on Growth : An Extension of the World Bank Long-Term Growth Model," Policy Research Working Paper Series 8604, The World Bank.
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    Keywords

    Educational Sciences; Economic Growth; Industrial Economics; Economic Theory&Research; Labor Markets; Health Care Services Industry;
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