Manufacturing as Engine of Growth and Industrialisation in Malaysia

Structural economists have been amongst the foremost proponents of a pro‐active industrial policy as the mechanism for promoting rapid economic growth (Lewis, 1956; Myrdal, 1957; Kaldor, 1967; Thirlwall, 1989). This is substantiated by the argument that manufacturing being characterised by increasingly specialised inter‐related activities, radiates tremendous impulses both intra and inter sectorally (Young, 1928: 527–42). Using a sample of 12 developed countries, Kaldor (1967:3–23; 1975:891–6; 1979; 1989:282–310) attempted an empirical study to support this relationship. A positive correlation between manufacturing growth and that of the economy has been defended on the grounds that manufacturing growth increases static (relate to size and scale of production units and are characteristic largely of manufacturing where in the process of doubling the linear dimensions of equipment, the surface increases by the square and the volume by the cube), as well as dynamic (relate to increasing returns brought about by ‘induced’ technical progress, learning by doing, external economies in production, etc.) returns (Thirlwall, 1989: 60). Since manufacturing also produces capital goods that are used in different industrial branches and other sectors, it is seen as a powerful mechanism for transmitting technical change (Weiss, 1988). It is for these reasons, structuralists generally prescribe government policies that favour manufacturing expansion. Malaysia is a good example of a natural resource rich country that has made manufacturing its main plank of economic growth especially since the launching of the New Economic Policy (NEP) in 1971 (see Malaysia, 1976). However, as industrial policy in each socio‐political space offers state‐specific characteristics, we will analyse industrialisation within Malaysia's setting.