How to Avoid Middle Income Traps? Evidence from Malaysia

53 Pages Posted: 20 Apr 2016

See all articles by Aaron Flaaen

Aaron Flaaen

Board of Governors of the Federal Reserve System

Syed Ejaz Ghani

World Bank

Saurabh Mishra

International Monetary Fund (IMF)

Date Written: April 1, 2013

Abstract

Malaysia's structural transformation from low to middle income is a success story, making it one of the most prominent manufacturing exporters' in the world. However, like many other middle income economies, it is squeezed by the competition from low-wage economies on the one hand, and more innovative advanced economies on the other. What can Malaysia do? Does Malaysia need a new growth strategy? This paper emphasizes the need for broad structural transformation; that is, moving to higher productivity production in both goods and services. This paper examines productivity growth for Malaysia at the sectoral level, and constructs several measures of the sophistication of goods and services trade, and puts these comparisons in a global context. The results indicate that Malaysia has further opportunities for growth in the services sector in particular. Modernizing the services sector may provide a way out of the middle income trap, and serve as a source of growth for Malaysia into the future.

Keywords: Economic Theory & Research, Banks & Banking Reform, Emerging Markets, Labor Policies, Economic Conditions and Volatility

Suggested Citation

Flaaen, Aaron and Ghani, Ejaz and Mishra, Saurabh, How to Avoid Middle Income Traps? Evidence from Malaysia (April 1, 2013). World Bank Policy Research Working Paper No. 6427, Available at SSRN: https://ssrn.com/abstract=2257196

Aaron Flaaen

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-973-7338 (Phone)

HOME PAGE: http://www.federalreserve.gov/econresdata/aaron-b-flaaen.htm

Ejaz Ghani (Contact Author)

World Bank ( email )

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

Saurabh Mishra

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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