Relationship between globalization and liberalisation in malaysia

relationship between globalization and liberalisation in malaysia

The implications of globalization for domestic employment and real wages, and . The data point to a close association between growth acceleration and the . and the liberalization of government rules in Korea and Taiwan on outward. The economic perspective is represented by the liberalization of the national 23) define globalization as, 'the multiplicity of linkages and. during the rapid globalisation periods of s and s, the Malaysian The main objective of this study is to analyse systematically the relationship .. liberalisation that accelerated the process of globalisation in the s and s.

The Impact of Globalization in Malaysia

Moreover, endogenous growth models imply that FDI can promote long-run growth by augmenting the existing stock of knowledge in the host economy through labor training and skill acquisition, on the one hand, and through the introduction of alternative management practices and organizational arrangements, on the other [ 5 ].

In this context it is also argued that multinational companies, through FDI, may also diffuse their knowledge of global markets to domestic firms and hence enable them to become more successful exporters. Hence, through capital accumulation and knowledge spillovers, FDI may play an important role for economic growth.

However, it is argued that FDI in the form of mergers and acquisitions do not necessarily increase the capital stock in capital-scarce economies. Cross-border mergers and acquisitions merely represent a transfer of existing assets from domestic to foreign hands.

If the proceeds of the sales of these assets are spent on consumption, FDI does not contribute to capital formation and growth. Accordingly, FDI may actually harm the host economy when foreign investors claim scarce resources such as import licenses, skilled manpower, credit facilities, etc. Additionally, there is also concern that the positive knowledge spillovers predicted by endogenous growth models do not occur in developing countries.

They report that only six out of 25 studies using appropriate data and estimation techniques find some positive evidence of spillovers running from foreign-owned to domestic owned firms, none of which is for developing countries. Aitken and Harrison [ 7 ] for Venezuela - actually find some evidence of negative effects of the presence of multinationals firms. Several explanations have been offered to explain these negative or statistically insignificant results.

The most plausible explanation for the negative effects is that foreign firms reduce the productivity of domestic firms through competition effects, as suggested by Aitken and Harrison [ 7 ]. They argue that multinationals have lower marginal costs due to some firm specific advantage, which allows them to attract demand away from domestic firms, forcing them to reduce their production and move up their average cost curve.

Furthermore, FDI is often associated with firm restructuring according to the production chain of the multinational company, which implies that raw materials and other inputs are purchased within the multinational enterprise and thus from foreign rather than local suppliers.

As a consequence, the production of local suppliers may shrink. Despite these potential negative effects, the empirical evidence generally suggests that FDI has a positive impact on economic growth in developing countries, as recent surveys by Hansen and Rand [ 8 ] attest. Admittedly, the size of the impact of FDI on growth seems to depend on economic and political conditions in the host country, such as the level of per capita income, the human capital base, the degree of openness in the economy, and the extent of the development of domestic financial markets.

Globalization and environment There are two schools of thought about the relationship between globalization and environment.

One preposition is that trade between countries with similar ratios of factor endowments worsens the environment by shifting pollution intensive industries to low regulation low income countries.

However, the earliest empirical work has found little evidence in support of PHH. Nevertheless, subsequent empirical research [ 9 ] has found evidence of a weak relationship between regulatory norms and trade.

Similarly, countries with similar environmental standards, a country that is abundant in the capital that is used in the production of the polluting good compared to the rest of the world, will expand the production of polluting good under free trade. But when the ratios of factor endowments differ along with environmental norms across countries then the net effect will depend upon the relative strength of each effect.

relationship between globalization and liberalisation in malaysia

The second preposition is that trade affects environment directly and indirectly. The indirect effect can take place through three principal channels: These effects arise due to changes in relative prices which in turn arise on account of integration with the global economy.

On the other hand direct effect comes because of increases in emissions especially from the transport sector which is responsible for moving goods and services between countries.

The scale effect refers to the scale of the economy. As the scale of economy grows, environment quality is likely to fall initially and then might improve later on. Efficient allocation of resources within countries raises the size of the industrial pollution base resulting in greater global emissions. This is measured by the share of the dirty industries in the total industrial output. How much a country emits per unit of a good produced or consumed depend on the techniques of production or consumption.

The technique effect refers to the channels through which globalization process brings the technology and pollutes the environment. For instance, pollution intensity of the dirty industry represents the technique effect.

The technique effect may arise due to technology transfer or due to trade induced innovations. Again, as explained above, when FDI is allowed to move across countries it will also affect environment depending upon the differences in environmental regulations and factor endowments between the countries. For instance, a country with less stringent environmental regulations will attract capital and lead to an expansion of production in the polluting industry.

Hence, the impact of trade liberalization and inflow of FDI may be diverse and their combined effect is uncertain. If the pollution heaven hypothesis plays the major role in trade, then an increase in FDI will amplify the effect.

relationship between globalization and liberalisation in malaysia

On the other hand if the factor endowments play the major role in trade, then the effect of inward FDI will be opposite from that of free trade. Literature Review On trade liberalization-growth nexus Substantial literature has developed on the effects of trade liberalization on various aspects of the macro economy of a country including its economic growth. Major reviews published include Edwards [ 10 ], Krueger [ 11 ], Rodriguez and Rodrik [ 12 ].

Examples of time series analysis include Harrigan and Mosley [ 13 ], Papageorgiou et al. The study by Papageorgiou et al.

Who evaluate 36 liberalization episodes in 19 Countries and conclude that more rapid growth of real GDP is secured with minimal transitional costs in unemployment and fiscal constraints. However, the conclusions have been challenged by Greenway largely on the grounds that the underlying measure of liberalization is not proper. Rodriquez and Rodrik [ 12 ] show, many of the reported results are not very robust to changes in specification. Thus, establishing whether or not policies related to liberalization of trade have impacted on growth is not straightforward.

The results have been questioned on three grounds.

The Impact of Globalization in Malaysia [FREE Paper Sample!]

Is it sensible to assume a continuation of pre-existing policies and performance? Second, how does one disentangle the effects of trade reforms from other effects?

Third, supply responses will differ from economy to economy: Also there is the familiar causality issue between exports and GDP. The direction of causality is very important in econometric analysis.

The first causality is described from exports to economic growth and is called the export led growth hypothesis [ 17 ]. Maki and Somwaru argue that export growth increases factor productivity due to increasing returns to scale by catering to the larger market, and relaxes the foreign exchange constraint for importing the modern technology and components. The other equally appealing causality is explained by output growth led export growth theory [ 18 ].

According to the latter theory the domestic market may not be sufficient for the increased output and thus the exporters have to look outward to sell their products. FDI-Growth nexus Large number of studies has been conducted on the effects of FDI on economic growth in developing countries over the last three decades.

The first group of studies has provided the theoretical rationale of the effect of FDI inflows on economic growth which is known as the FDIgrowth nexus [ 1920 ].

Empirical studies from both cross country and country specific experiences have pointed to Foreign Direct Investment FDI as being critical in promoting growth. For instance, it is described in the literature that there are two main channels through which FDI may be growth enhancing [ 5 ]: First, FDI can encourage the adoption of new technology in the production process through capital spillovers.

Second, FDI may stimulate knowledge transfers, both in terms of labor training and skill acquisition and by introducing alternative management practices and better organizational arrangements.

The elasticity of the estimated production function of FDI was found to be significant in explaining the economic growth of all the four countries. Estimated foreign capital elasticity was found to be 0. Clearly, they conclude that both FDI and imports had a significant impact on growth.

De Mello [ 5 ] conducted time series as well as panel data estimation. He included a sample of 15 developed and 17 developing countries for the period The study found strong relationship between FDI, capital accumulation, output and productivity growth. The panel data estimation indicated a positive impact of FDI on output growth in both developed and developing country subsamples.

However, the effect of FDI on capital accumulation and TFP growth varies across developed technological leaders and developing countries technological followers. The scholars urge the people of Malaysia to look at the western communities as development partners instead of perceiving them as potential enemies. One scholar emphasizes the fact that globalization is a force that is shaping the entire world in modern times Stiglitz As a rapidly developing country, Malaysians are encouraged to play a central role in the global arena if they are to attain sustainable development status.

relationship between globalization and liberalisation in malaysia

But the most defining moment in Malaysian international relationship came during the wake of the Asian financial crisis Stiglitz It took stringent measures in reaction to this unprecedented economic downward trend. Mahathir Mohamad, the longest serving Prime Minister, was in charge during the crisis and he played a major role in criticizing the west for what was perceived as negative impacts of the globalization process Mahathir,4.

The precautionary measures recommended by Muhathir won him a number of admirers as well as opponents. It was the successful management of the crisis by Mahathir using the autonomy of national policy that was seen as the greatest challenge to the conventional economic dictatorship of liberalization brought about by the perceived forces of globalization Nesadurai As opposed to popular beliefs that Malaysia under the reign of Mahathir condemned globalization in its totality, it is crucial to note that over the last two decades of the 20th century, Malaysia welcomed, developed and promoted what it perceived as good aspects globalization Rahman The analysts of the global economic phenomena regard globalization as a new force to be reckoned as far as world market relationship is concerned.

This process has a historical account and the analysts have concluded that there is a notable qualitative improvement in the successive instances Held With time, there has been increased influence by the American hegemony, division of labor on the international scale, and the introduction of stringent systems of economic policies.

Initially, these regulatory influences were through the Bretton Woods system and in modern times via the World Trade Organization WTOcoupled with the upcoming neo-liberal world market Hoogvelt Neo-liberal system is characterized by the continued growth and critical import of financial capital facilitated by technological forces as well as political influence Helleiner The ever increasing transfer of financial capital, especially the speed of its mobility and the volume transacted, has resulted in grave consequences to the various national economies including that of Malaysia.

In particular, most national economies have been rendered redundant and taken hostage to this new capital mobility and general world order marked by the dramatic globalization process. From a comparative perspective, the neo-liberal experience has been felt in smaller economies like Singapore and Malaysia as well as for developed economies, United States of America and France alike Helleiner This is due to the fact that the stock trading determines the recovery rate after a drastic fall in financial markets.

It can be universally accepted that globalization is not a universal concept; instead, it is multi-dimensional especially in the Malaysian context. Different people in Malaysia have varying perceptions of this concept. Some Malaysians associate it with the infiltration of foreign multinationals, new brands and ways of life, while others belief that it is development of technological applications like the internet, the ever increasing number of non-governmental organizations and the great influence of global market trends on Malaysia Held These forces are believed to have shaped the capital and labor order in the country and hence influencing the daily lives of the people.

The initial engagement of Malaysia with global economy can be traced to the time when it ventured in the export-led strategy of growth in Inthe year when Dr. Mahathir brought with him new policies and other reform measures which were geared towards the adoption of neo-liberalized market trend Mahathir,2.

Most state-owned utilities were privatized; drastic cuts in both the direct and corporate taxes were witnessed, as well as reduced expenditure by the Malaysian government Mahathir,7. This enthusiastic process was seen as a new dawn for Malaysian development. The need for economic stability was reinforced by the declaration of clear economic development objectives which were aimed at revolutionizing the industrial, agriculture, and services sectors.

Furthermore, Malaysia experienced a growing foreign investment over a period of five years from During the early years of s, the economy continued to expand significantly, resulting in increased rate of globalization and the regulations controlling capital and labor were subsequently liberalized Mahathir, Within five years, the major factor that engineered Malaysian economic growth was the foreign capital from investors Mahathir,4.

relationship between globalization and liberalisation in malaysia

This upward economic trend, as mentioned earlier, was to receive a major blow in the Asian financial crisis. The unique leadership style adopted by Dr. Mahathir was not without disapproval from western allies. Despite the globalization process influencing the Malaysian economic sector significantly, it also affected the socio-cultural dimension as well. There was a social and cultural shake up when globalization was taking root as Malaysia sought alternative approaches of attaining sustainable development Rosenberger Another important area which has been influenced by the globalization process is education.

With Malaysia expecting to be an industrialized state byvocational education and training has received increased attention especially from the government and private sector Mahathir,8.

The broadband interconnectivity has enable Malaysia to connect with the developed countries, thanks to the Multimedia Super Corridor. This urgent need for education reform in technical-vocational systems has been triggered by the globalization process Held On the political dimension, globalization was not without some degree of influence on the politics of Malaysia and other Asian states. Inthere was a serious global attack of Malaysian and Singaporean treatment of social and political agitators.

The outside world questioned their way of regarding human rights Mauzy He termed this approach as neo-colonialism Mahathir, Mahathir was especially angered by the double standards approach employed by the Americans as far as human rights was concerned Mahathir, The heated criticisms and counter-criticisms, however, seemed not to affect the ever increasing Malaysian relationship with the west, especially on foreign policy development.

This can be attributed to the mutual benefit that each party enjoyed from the engagement Rasiah Moreover, the Malaysian political dimension was seriously shaken by the Asian financial crisis which, according to Mahathir, was a product of the globalization process Mahathir,2.

It was unfortunate that during this year, there ensued a political crisis which resultant in the sacking of the then deputy prime minister, Anwar Ibrahim, who was arrested and later imprisoned.

The Prime Minister saw his deputy as an agent of the western economies who were determined to force their misleading policies and regulations in the name of globalization Mahathir,5. These experiences positioned Mahathir as an architect of the globalization process in Malaysia who new what was good or bad for the country.

The Prime Minister warned his fellow countrymen of the dangers of blindly embracing globalization.