Tiger Economies Under Threat: A Comparative Analysis of Malaysia's Industrial Prospects and Policy Options »

Southeast Asian tiger economies feel threatened by competition from other countries and worry that their growth momentum might be flagging. Even though their growth rates are above the average for the world and for developing countries, they fall short of yesterday's economic performance. The underlying worry is that they presage the beginning of a downward trend, the harbingers of which are lower rates of investment, persistently low rates of total factor productivity and low levels of innovativeness.

The South East Asian tigers' worries motivate three questions:

First, are the tigers rightly threatened by a creeping economic sclerosis or what some observers are calling the "middle income trap"?

Second, if the threat is real, what are the underlying causes?

Third, are there ways of neutralizing the problems and at least maintaining if not raising the growth rates of the recent past?

This book tackles these questions by means of a comparative analysis of the Southeast Asian tiger economies, centered on Malaysia. This analysis draws upon a comprehensive set of techniques and indicators to assess competitive pressures, gauge industrial and technological capabilities and to indicate the directions of industrial change in Southeast Asia could take.

Acknowledgments xv

About the Authors xvii

Abbreviations xix

Chapter 1 Southeast Asia Faces Mounting Competition 1

Brief Development History of the Four Southeast Asian Tigers 4

The East Asian Model 5

The Malaysian Experience 7

Analyzing Industrial Change in Southeast Asia 14

Tiger in the Spotlight 15

Chapter 2 Malaysia: The Quintessential Maturing Tiger Economy 17

Sources of Growth 17

Evolution of the Manufacturing Industry in Malaysia 22

Annex 2.A: Indicators of Competitiveness 31

Chapter 3 Analyzing Comparative Advantage and Industrial Change: Reading the Export Trade Tea Leaves 37

Exports and Industrial Change 38

An Overview of Export Capabilities 86

Chapter 4 Imports and Foreign Direct Investment: Competition and Technology Transfer 93

Imports and Technology Transfer 95

Patterns of Foreign Direct Investment 98

Technology Infusion from FDI and Upgrading 102

Chapter 5 Leading and Faltering Industries: The Electronics, Auto Parts, and Agro-Processing Sectors 105

Electronics and Electrical Engineering 105

Auto Parts Industry 109

Palm Oil, Biodiesel, and Food Products 113

Chapter 6 Can Southeast Asian Tiger Economies Become Innovative? 119

Industrial Location 119

Quality of Labor 131

Access to Finance 150

Chapter 7 From Technology Development to Innovation Capability 159

R&D Spending 160

Patenting Activity 172

Licensing and Technology Transfer 178

Research Activities of Malaysian Firms 180

Innovation Comparative Advantage 183

Chapter 8 Can the Tigers Grow Fast and Furious Again? 187

Long-Run Growth 187

How Neighboring Economies Can Affect Malaysia 199

Chapter 9 What Can the Tigers Do?203

Appendix A Revealed Comparative Advantage of East Asian Economies Other than Malaysia 219

Appendix B Product Space Analysis for Southeast Asian Economies 225

Appendix C Research and Development Spending by Private Firms in Malaysia 235

Appendix D Index of Innovation Revealed Comparative Advantage 237

Appendix E Financial Incentives for Research and Development, Technology Development, and Innovation in Chinese Firms 241

Appendix F Financial Incentives for Research and Development, Technology Development, and Innovation in Thai Firms 243

References 249

Index 269

Figures

2.1 Industrial Composition by Type of Manufacture, Malaysia, 1981, 1990, and 2002 23

2.2 Value-Added Ratios in Machinery in Selected East Asian Economies 27