The Growth of China and India: Implications and Policy Reform Options for Malaysia

25 Pages Posted: 2 Nov 2010

See all articles by Elena Ianchovichina

Elena Ianchovichina

World Bank

Maros Ivanic

World Bank; World Bank - Development Economics Group (DEC); World Bank - Development Research Group (DECRG)

Will J. Martin

International Food Policy Research Institute (IFPRI)

Abstract

This study explores the trade-related impacts of rapid growth of China and India on the Malaysian economy and evaluates policy options to better position Malaysia to take advantage of these changes. Higher growth in China and India is likely to raise Malaysia's national income and to expand Malaysia's natural resource and agricultural exports, while putting downward pressure on exports from some manufacturing and service sectors. Increases in the quality and variety of exports from China and India are likely to increase substantially the overall gains to Malaysia. The expansion of the natural resource sectors and the contraction of manufacturing and services reflect a Dutch-disease effect that will raise the importance of policies to facilitate adaptation to the changing world economy and improve competitiveness. Most-favoured-nation (MFN) liberalisation would increase welfare, and, by increasing competitiveness, raise output and exports of key industries. Preferential liberalisation with India and completely free trade with China would provide greater market access gains than MFN reform, but neither would be as effective in increasing income as MFN liberalisation, and free trade agreements would lead to greater competitive pressure on many of Malaysia's industries than MFN liberalisation. Increased investments in education and infrastructure could boost manufacturing and services sectors in Malaysia, while improving trade logistics would benefit sectors with high transport costs, including the agricultural and resource-based industries.

Suggested Citation

Ianchovichina, Elena and Ivanic, Maros and Martin, William J., The Growth of China and India: Implications and Policy Reform Options for Malaysia. Asian-Pacific Economic Literature, Vol. 24, Issue 2, pp. 117-141, November 2010. Available at SSRN: https://ssrn.com/abstract=1701352 or http://dx.doi.org/10.1111/j.1467-8411.2010.01263.x

Elena Ianchovichina (Contact Author)

World Bank ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-458-8910 (Phone)
202-522-1159 (Fax)

Maros Ivanic

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

World Bank - Development Economics Group (DEC) ( email )

1818 H Street N.W.
Washington, DC 20433
United States

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

William J. Martin

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

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