KUALA LUMPUR, Sept 2 — Fifty-seven years after independence, Malaysia remains a middle-income income nation due to a lack of quality in political and financial institutions, Financial Times (FT) said in its recent beyondbrics blog. Comparing the gross domestic product (GDP) per capita of seven countries which achieved independence from their European colonisers, the international business paper judged two other former British colonies Singapore and Hong Kong as more successful. “What really jumps out is that high-quality public institutions make a huge difference, whether that is political governance or in the development of financial markets,” economist Eswar Prasad of Cornell University was quoted as saying.
“A country like Singapore put a huge amount of effort into creating a reliable institutional framework that was able to manage growth and investment. Others were much less successful,” he added, referring to former colonies, including Malaysia. Besides Malaysia, Singapore and Hong Kong, other former British colonies in the case study were India, Pakistan, Bangladesh. Indonesia, a former Dutch colony and Vietnam, previously a French colony, were also part of the study. Malaysia’s exports have grown compared to South Asian countries which languish despite their immense size, the blog added. Cambridge University economist Ha-Joon Chang was quoted as saying that Malaysia is still “stuck” in with a middle-income status despite being more open to foreign investment.
“The idea of simple openness succeeding and being closed as bad is quite misleading,” Chang said. “Countries like Japan and Korea maintained high levels of protection in the beginning, but always with the intention of bringing it down when they became world-class exporters.” The blog also quoted a widely-cited paper in 2007 co-authored by Prasad, India’s current central bank head Raghuram Rajan, and economist Arvind Subramanian, which argued that developing nations tend to grow more slowly when they rely on foreign sources of capital compared to those using domestic savings. The blog also noted that a reliance on internal savings can make a country less susceptible to economic shocks and capital flight, as in the case of the 1990s Asian financial crisis which struck Malaysia among others. Malaysia’s economy grew 6.4 per cent in the second quarter, faster than expected, as exports kept up their strong performance and consumer spending stayed buoyant despite steps by the central bank to curb high household debt levels.