Malaysia : Trade, Foreign Direct Investment and Regional Integration

As a highly open or trade dependent economy, Malaysia has become very vulnerable to global market sentiment. The recent slowdown in external demand, the trade exposure to China and uncertainties over the trade policies of the United States, lower commodity prices and larger capital and intermediate imports have begun to deteriorate external balances. This trend runs contrary to the long history of trade and strong surpluses recorded in the current account. The resilience and global positioning of the economy is therefore being called into question. Similarly, questions arise about the relevance and effectiveness of industrial policy of the yesteryears for transforming the economy under the present inter-connected and complex environment. This chapter therefore examines how Malaysia has responded to global challenges through product and market diversification, investment promotion and trade strategies. Specifically, it profiles the changes in the trade structure and direction of trade, namely the foreign direct investment-trade nexus that generated supply chain linkages, and reviews the industrial policy drive since the 1990s . Then follows an in-depth examination of Malaysia's regional links through the trade and investment patterns with the Association of Southeast Asian Nations. Finally, this chapter concludes, sanguinely, with suggestions for a reframing of the industrial policy with a focus on the firm