Middle Income Trap Economies, the Way Forward in Malaysia

Abstract

Malaysia continues to struggle in addressing the identified challenges that are preventing or delaying the country’s shift to high-income status. Despite the numerous bold policy measures and long-term plans introduced by the Government over the years, Malaysia’s economic progress continues to be plagued by a lack of innovation and skills, low level of investments in technology, declining standards in education, relatively high labour cost and sluggish productivity growth. Reform measures have not been focused the underlying causes of the country’s economic uncompetitiveness. The on-going economic and government transformation programmes may spike growth in the short term but sustainable broad-based growth to escape the ‘middle-income trap’ requires parallel socio-political transformation. There is a compelling need for Malaysia to shift to needs-based policy in order to address imbalances in society and improve the democratic process to ensure good governance and that the rule of law prevails. Adequate checks and balances must be maintained to support the integrity of Malaysia’s key institutions. Malaysia faces an increasingly fragile economic scenario, as traditional growth drivers, that is, exports and investment, have somewhat been losing momentum over the year.

Keywords: Middle Income Trap, Malaysia, Economy, Openness

JEL Classification: A10