Page 17 - Focus_in_Continuity_a_Monograph

Malaysia’s Place in the Global Economy 12

last few decades show that for developing Lessons Learnt and Policy
countries, trade is a necessary but Recommendations
15
insu cient condition for development.
The ability of greater trade and investment Making trade openness work for Malaysia
to produce positive spillovers for countries will require more than just the signing
depends largely on existing country agreements. Truly harnessing the forces of
characteristics (regulatory environment global linkages means that Malaysia’s
and human capital) and complementary trade and development policy should be:
supply-side policies. Indeed, research 1) Focused on the long-term: aimed at
indicates that the gains from international internalising the benefits of trade and FDI
trade and foreign investment are towards long-term growth and building
rarely automatic. A country that has domestic innovative capacity; 2) Inclusive:
stronger institutions, good infrastructure, making e orts to democratise potential
better-developed human capital, and a gains from trade across regions, sectors
higher-skilled workforce will be better able and workers.
to internalise the knowledge, technology,
and growth spillovers from international Focused on the long-term: a large part of
16
trade and capital flows . maximising the gains from international
trade and foreign investment is
Indeed, the successful export-led internalising the benefits of these global
industrialisation of the East Asian forces, directing it towards accelerating
economies were accompanied by large long-term productivity growth, and
supply-side investments in human capital developing domestic human capital and
and infrastructure. Rising trade and innovation. As Malaysia strengthens its
investment were supported by an economic linkages with the world, it also
emphasis on internalising the benefits of needs to improve the ‘absorptive’ capacity
foreign investment to build domestic of Malaysia’s economy and labour market
capabilities and drive industrial upgrading. in order to fully maximise the potential
17
Large amounts were spent on research gains from trade and FDI.
and development, and to incentivise
domestic innovation. Steadfast political This means accelerating human capital
will was exercised to undertake politically development while strengthening political
di cult structural reforms. and institutional governance. This would
also need to include concerted e orts to
After all, FDI flows matter little for devel- redirect the gains from greater trade and
opment if its benefits are captured by FDI towards developing domestic
foreign firms instead of being directed capacity, innovation, and competitiveness.
towards building indigenous capacity to One way to ensure this is to encourage
produce and innovate. Trade matters little greater backward and forward linkages
for productivity if the benefits accrue to between local firms and SMEs and large
18
large multinationals “winners” while the export-facing multinationals. To be sure,
domestic “losers” of trade bear the costs. this can be done without the use of blunt
Similarly, large free trade agreements and tools like local content restrictions and/or
market access mean little if local firms are overly generous tax incentives with
not exporting or cannot produce goods dubious cost-benefit track records.
and services that the world demands. Policy initiatives to improve information