Export Expansion in Malaysia's Manufacturing Sector: Problems and Prospects

• Main Author: Thambusamy, Brahmananthan
• Format: Thesis
• Language: English; English
• Published: 1998
• Online Access: http://psasir.upm.edu.my/id/eprint/8063/1/FEP_1998_6_A.pdf; http://psasir.upm.edu.my/id/eprint/8063/

Manufacturing industry for export has made a remarkable catalyst for export expansion in many developing countries. In the last two decades, the manufacturing sector in Malaysia underwent the most rapid economic growth. In the year 1996, it accounted for nearly 75% of Malaysia's total exports. However Malaysia's manufacturing industry is facing problems in teons of export expansion. The structural problems encountered are in terms of languishing labour productivity, high tariff imposition on manufactured goods by designated markets, unstable exchange rate, increasing labour wage and, the flow of foreign direct investment into Malaysia. The theoretical model of Malaysia's exports of manufactured goods is based on the demand and supply theory. The exports of Malaysia's manufactured goods are the excess supply function in the international market. This excess supply function is hypothesized to be influenced by export price, labour productivity, exchange rate, tariff, labour wage, foreign direct investment and the importing nation's Gross Domestic Product. Five equations were formulated based on Malaysia's principal export markets of manufactured goods, which are the USA, Singapore, Japan, Germany and the Rest of the World. The equations were estimated by the Seemingly Unrelated Regression method in double log fonn. It was found that 70% of the coefficients for the five equations were significant. The five equations or the model as a whole, performed well. On the experimentation of simulation analysis, changes in the values of the variables of export price, labour productivity, labour wage, exchange rate, foreign direct investment and Gross Domestic Product greatly influenced the exports of manufactured goods. Only tariff showed minimum influence on the exports. The results indicate improvements in exporting price, labour productivity, foreign direct investment and importing nations Gross Domestic Product will increase Malaysia's exports of manufactured goods in the futm;e .. J)ecrease in labour wage and tariff will simulate the exports. Whereas an appropriate exchange rate will not discriminate against the exports of manufactured goods to the international market.