Download Malaysian Economic Development

Malaysian Economy
Bachelor of Business Administration (BBA)
Professor Dr. Ahmad Bin Othman
School of Business and Management
University College of Technology Sarawak (UCTS)
96000 Sibu, Sarawak
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Today’s Agenda
(Week #2)
 Understanding of Economic development
 Clark and Fisher Model of Development
 Malaysian Economic Development
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Understanding of Economic Development
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Economic Development
General discussions …….
 Economic development is a term that economists, politicians, and others have
used frequently in the 20th century. The concept, however, has been in
existence in the West for centuries. Modernization, Westernization, and
especially Industrialization are other terms people have used when discussing
economic development.
Economic Development
General discussions …….
 Economic development is generally referred to the sustained, concerted effort of
policymakers and community to promote the standard of living and economic wealth
in a specific area.
 It involves multiple areas including development of human capital, critical
infrastructure, regional competitiveness, environmental sustainability, social
inclusion, health, safety, literacy, and other initiatives.
 The scope of economic development includes the process and policies by which a
nation improves the economic, political, and social well-being of its people.
Economic Development
Economic Development …. A definition
 Economic development is the development of economic wealth of countries, regions
or communities for the well-being of their inhabitants.
 From a policy perspective, economic development can be defined as efforts that seek
to improve the economic well-being and quality of life for a community by creating
and/or retaining jobs and supporting or growing incomes and the tax base
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Economic growth
Economic development differs from economic growth.
 Economic growth concerns about an increase in a country's real level of national output
which can be caused by an increase in the quality of resources (by education etc.),
increase in the quantity of resources & improvements in technology or in another way
an increase in the value of goods and services produced by every sector of the economy.
 Economic Growth can be measured by an increase in a country's GDP (gross domestic
product).
 On the other hand, economic development is a policy intervention endeavor with aims
of economic and social well-being of people.
Economic growth
 Economic growth = Growth of national income of the country
 It increases in a net national product in a given period of time say a year
 The country will register economic growth only if per capita income was gone up
when the national income growth at a higher rate than the growth rate of population
Clark and Fisher Model of Development
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Model of Development
Who are Clark and Fisher?
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Model of Development
John Bates Clark ……. Biography
 Was born on January 26, 1847 and raised in Providence, Rhode Island.
 Graduated from the Amherst college in the age of 25.
 1872-1875 attended University of Zurich and University of Heidelberg,
where studied under Karl Knies (one of the leaders of German Historical
School)
 After return to US, taught history, economics and other subjects in the
26/1/1847 – 21/3/1938)
Carleton, Smith and Amherst colleges.
 In 1895 got a position in Columbia University (John Hopkins University)
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Model of Development
John Bates Clark ……. His work
 Early works – critics of capitalism, reflecting the influence of the German
socialism. Competition is not a universal remedy.
“….. We do not eat man … but we do it by such indirect and refined
methods that it does not generally occur to us that we are cannibals”
(Clark, J.B., 1878, How to Deal with Communism).
 Change of views, finishes the first work “THE PHILOSOPHY OF WEALTH
(1886)”
26/1/1847 – 21/3/1938)
“ …. He was convinced that pure competition was the natural and normal
law by which the economic order obtained justice” (Everett, J.R., 1946,
Religion in Economics)
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Model of Development
John Bates Clark ……. Main works
 The Philosophy of Wealth (1886)
 The Distribution of Wealth (1899, 1902)
 Essentials of Economic Theory (1907)
 Social Justice without Socialism (1914)
26/1/1847 – 21/3/1938)
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Model of Development
Irvin Fisher ……. Biography
 Was born on February 27, 1867, New York.
 Since childhood he had a good mathematical abilities and flair for
invention.
 Graduated from Yale in 1888 with BA degree
 In 1891 he was granted Yale PhD in Economics
27/2/1867 – 29/4/1947)
 Teacher Maths, Professor of Economics, Yale University
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Model of Development
Irvin Fisher ……. Publications
 Mathematical Investigations in the Theory of Value
and Prices (1892, 1961).
 The Nature of Capital and Income (1906, 1927).
 The Purchasing Power of Money (1911, 1920).
 Elementary Principles of Economics (1912).
 Stabilizing the Dollar (1920).
 The Making of Index Numbers (1922, 1927).
27/2/1867 – 29/4/1947)
 The Money Illusion (1928)
 The Theory of Interest (1930, 1961)
 Booms and Depressions (1932)
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Model of Development
Clark Fisher Model of Development
 Two economists, Fisher and Clark put forward the idea that economy would
have three stages of production.
 The model uses percentages employed in each sector.
 It shows how as economy grows the relative importance of different sector
changes.
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Model of Development
The three stages are:
 Primary production
 Secondary production
 Tertiary production
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Model of Development
1. Primary production
Primary
Sector
 Is related to activities of
extracting raw materials
through agriculture,
mining, fishing, and
forestry.
 Low income countries are
assumed to be dominated
by primary production.
 These are relatively
primitive economies
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Model of Development
Secondary
Sector
Secondary production
 Is related to the growth of
manufacturing and
construction sectors
 Middle income countries are
often dominated by
secondary production
 To fulfill the growing
demand in industrial goods,
leads to decrease of
manufacturing
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Model of Development
Tertiary production
Tertiary
Sector
 Is concerned with the provision of
services, such as
 education
 healthcare
 financial services
 tourism
 This sector dominates in highincome countries
 This change is driven by an increase
in productivity per employee
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Model of Development
… to summarize
 Increased productivity in agriculture frees people to work in
manufacturing.
 Increased manufacturing productivity and increased income
means people spend proportionally less on agricultural goods,
 and then less on manufacturing goods than on services.
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Model of Development
Quaternary production
 The quaternary sector of the economy is an
extension of the three-sector hypothesis of
industry.
 It principally concerns the intellectual services:
 information generation
 information sharing
 consultation
 education
 R&D
 It is sometimes incorporated into the tertiary sector
but some argue that intellectual services are
distinct enough to warrant a separate sector.
 This sector evolves in well developed countries
and requires a highly educated workforce
Quaternary
Sector
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Model of Development
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Model of Development
Another Clark……. Colin Grant Clark
 Was born on November 2, 1905 in London, England.
 Graduated in Chemistry in 1928.
 1928-29, worked as research assistant at the London School of Economics.
 Lecturer of Statistics in Cambridge, 1931-38.
 1938-46, worked with Queensland Government, Australia
 1951, seconded to FAO in Rome
 1952-69, worked with Oxford University as the Director of Institute for
2/11/1905 – 4/9/1989)
Agricultural Economics
 1969-78, worked as the Director of the Institute of Economic Progress, Monash
University
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Model of Development
Colin Grant Clark ……. Main works (not all)
 National Income and Outlay, 1937
 Conditions of Economic Progress (1940)
 Economics of Subsistence Agriculture, 1964
 Population Growth and Land Use, 1967
 Regional and urban Location, 1982
2/11/1905 – 4/9/1989)
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Model of Development
Colin Clark predicted….
“… as times goes on and communities become more economically advanced, the
numbers engaged in agriculture tend to decline relative to the numbers engaged
in manufacture, which in their turn decline to the numbers engaged in service”
(Clark, 1960).
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Malaysian Economic Development
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Malaysian Economic Development
Question
Does the Malaysian economy following the economic development model as
presented by Clark and Fisher?
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Malaysian Economic Development
Contribution of Agriculture, Manufacturing and Services Sector in Employment
Year
Agriculture
1982
31.2
1983
30.6
30.4
30.4
30.6
30.9
30.6
28.7
26.0
21.8
21.1
20.0
19.4
17.3
18.8
18.4
16.7
15.1
14.9
14.3
14.6
14.6
14.6
14.8
1984
1985
1986
1987
1988
1989
1990
1992
1993
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Manufacture
15.5
16.4
15.4
15.0
15.2
15.5
15.9
18.3
19.9
23.3
23.4
23.3
22.8
23.4
22.2
22.5
23.5
23.3
21.7
21.6
20.3
19.8
20.3
18.8
Services
44.4
43.5
45.0
45.8
46.5
46.8
46.8
46.0
46.5
46.6
46.9
47.7
48.4
49.0
49.4
49.9
50.8
51.8
53.1
53.7
55.3
55.6
55.1
56.7
Services
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Malaysian Economic Development
Gross Domestic Product by Economic Activities
60.0
50.0
Services
40.0
Manufacturing
30.0
Agriculture
20.0
10.0
0.0
1965
1970
1975
Agriculture
Agriculture
Mining
Manufacturing
Construction
Electricity, gas & water
Services
1965
31.5
9.0
10.4
4.1
1.1
43.9
1970
29.0
13.7
13.9
3.5
1.1
38.8
1975
27.7
4.6
16.4
3.8
2.0
45.5
1980
22.9
10.1
19.6
4.6
1.4
41.4
1985
20.8
10.5
19.7
4.8
1.8
42.4
1990
15.2
11.8
24.2
3.9
2.2
44.3
1995
12.9
6.2
26.4
6.2
2.6
47.8
2000
8.6
10.6
30.9
3.9
3.0
46.2
2005
8.4
14.4
29.6
3.0
2.7
44.0
1980
Mining
2009
9.5
12.9
26.6
3.3
2.6
48.3
1985
Manufacturing
1990
1995
Construction
2000
2005
2009
Electricity, gas & water
Services
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Model of Development
Criticism of the model
 There are many LDCs where the main sector is a service sector, without having
a properly developed secondary sector.
Examples:
-Kenya (tourism)
-Malta (tourism, financial services)
-Cyprus (tourism, financial services)
-Hong Kong (financial services)
 The model ignores the international economic context , not taking into
consideration the import of manufactured goods
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Factors determining the rate of Economic development
1. Availability of natural resources
2. The rate of capital formation
3. Capital-out put ratio
4. Technological progress
5. Dynamic Entrepreneurship
6. Rate of growth of population
7. Social overheads like education & health
8. Non-Economic factor
Thank You
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