Malaysia is a country in
South East Asia whose
strategic sea-lane position Chap 1
brought trade and foreign
influences that
fundamentally influenced
its history. Hindu and
Buddhist cultures
imported from India
dominated early
Malaysian history.
Introduction to Economic
Tips: Student should know Development
history in Malaysia.
1.1 Malaysia History
Malaysia is a country in South East Asia whose
strategic sea-lane position brought trade and
foreign influences that fundamentally influenced
its history. Hindu and Buddhist cultures imported
from India dominated early Malaysian history.
They reached their peak in the Sumatran-based
Srivijaya civilization, whose influence extended
through Sumatra, Java, the Malay Peninsula and
much of Borneo from the 7th to the 14th
centuries.
Although Muslims had passed through Malaysia
as early as the 10th century, it was not until the
14th and 15th centuries that Islam first
established itself on the Malayan Peninsular.
The adoption of Islam by the 15th century saw
the rise of number sultanates, the most
prominent of which was the Melaka (Malacca).
Islamic culture has had a profound influence on
the Malay people, but has also been influenced
by them.
The Portuguese were the first European colonial
powers to establish themselves in Malaysia,
capturing Malacca in 1511, followed by the Dutch.
However, it was the British, who after initially
establishing bases at Jesselton, Kuching, Penang
1
Economic growth
is the increase o
Economic
per growth capita
theEconomic
is gross increase
domestic of
development prod
and Singapore, ultimately secured their hegemony per uct
Economic capita is
gross the
(GDP)increase
domestic orprod in
other
across the territory that is now Malaysia. development
uct is
the standard o
measures
the
(GDP) increase
or otherin o
living
aggregate in a
The Anglo-Dutch Treaty of 1824 defined the boundaries the
measures standardincome of
of
between British Malaya and the Netherlands East Indies nation's
typically reported as
living
aggregate in
income, a
(which became Indonesia). A fourth phase of foreign thepopulation
annual ratewith
o
nation's
typically
change reported
in real as
GDP.
influence was immigration of Chinese and Indian sustained
population
the annual rate withof
workers to meet the needs of the colonial economy
change growth from
in real GDP. a
created by the British in the Malay Peninsula and sustained
simple, low
Borneo. growth from a
income economy
simple, low-
to a modern
Japanese invasion during World War II ended British income economy
high-income
domination in Malaysia. The subsequent occupation to a modern,
economy.
from 1942 to 1945 unleashed nationalism in Malaya and high-income
Borneo. In the Peninsula, the Malayan Communist Party economy.
took up arms against the British. A tough military
response was needed to end the insurgency and bring Tips : Student most
about the establishment of an independent, multi-racial know definition of
Tips : Student most
Federation of Malaya in 1957. economic growth.
know definition of
On 31 August 1963, the British territories in North economic growth.
Borneo and Singapore were granted independence and Source of
formed Malaysia with the Peninsular states on 16
Economic
September 1963. Approximately two years later, Source of
Singapore was expelled from the Federation. Development
Economic
Development
Labor force
A confrontation with Indonesia occurred in the early-
1960s. Race riots in 1969 led to the imposition of Labor force
Technology
emergency rule, and a curtailment of political life and
civil liberties which has never been fully reversed. Since Technology
Capital
1970 the "National Front coalition" headed by United
Malays National Organisation (UMNO) has governed Capital
Natural resource
Malaysia. Economic growth dramatically increased
living standards by the 1990s. This growing prosperity Natural
Landresource
helped minimise political discontent.
LandEducation and
1.2 What is Economic Growth? knowledgeable
Education and
skill
Economic growth is the increase of per capita gross knowledgeable
domestic product (GDP) or other measures of aggregate skill
income, typically reported as the annual rate of change
in real GDP.
1.3 Source Of Economic Growth
Difference countries have different level of economic
development.
i. Productivity
2
ii. Factor production(natural resource)
iii. Tehnology advance
iv. High rate of social, polical and ideological transformation
1.4 What is Economic Development?
Economic development is the increase in the standard of living in a
nation's population with sustained growth from a simple, low-income
economy to a modern, high-income economy.
1.5 Source of Economic Development
i. Labor force
ii. Technology
iii. Capital
iv. Natural resource
v. Land
vi. Education and knowledgeable skill
1.6 Source of Contributing to Rapid Economic Development of Malaysia.
i. Its labor force is not only large for its population but young and
educated. Many of its skilled managerial labor force were trained in
countries such as the US,UK and Japan. The effect is productivity will
increase.
ii. The introduction off latest technology can bring country faster
development.
iii. Usually a developed country have a big capital such as capital in
human, land, resource and income.
iv. The availability of natural resource such as palm oil, timber,
petroleum and natural gas. Natural resource can promote economic
growth.
v. The increasing educational institutions and increasing educational
system in Malaysia can produce more workers in high qualification
such as degree, master and PhD holder.
vi. The overall stability of its political environment. Despite its multi
ethnic and multi society, Malaysia is one of few countries that has
experience changes in leadership without loss of continuity in
government policies.
vii. Vision 2020, a vision of what Malaysia should be like in be year 2020,
has been accepted by all Malaysian.
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Factor Influence the
Level of Economic
Development
viii. Malaysian has strong financial system. By
i. Political
BNM and the financial system have been
stability
successful in dealing with challenges from
ii. Human
both domestic and external development.
development
iii. Diversificatio
n of economy
iv. Impact of
reginal
economy
The concept of growth in
an Islamic economy is link
to Islamic principle.
Growth of output and
services cannot be called
1.7 Economic Growth and Development in
as economic growth if it
Islamic Perpectives
involves production of
good and service that can
The concept of growth in an Islamic economy is
affect human welfare.
link to Islamic principle. Growth of output and
services cannot be called as economic growth if it
Tips: Student should know involves production of good and service that can
development in Islamic. affect human welfare.
Economic growth must incorporate a product mix
which adheres to the norms and value of Islam.
Thus, economic growth in Islam may be defined
as a sustained growth of a certain kind of output
and service which can contribute to human
welfare.
The production of forbidden (haram) product and
harmful items are not considered as economic
growth in an Islamic economy, for example the
production of alcoholic beverages, scientifically
untested drugs, the rearing of pigs or being
involved in immoral activities.
4
The concepts of
development from
The concepts of
The concepts of development from Islamic is deference Islamic is deference with
development from
with development concept in conventional. The concept development concept in
Islamic is deference with
of development in conventional western approach are conventional
development concept in
quantitative and qualitative. It involveds calculation
conventional
such as GDP, oer capita income, saving, investment,
infrasture and development project.
Meanwhile Islam ultimate objective economic The concept of
development is not merely material welfare in this development in
The concept of
world but extendes to hereafter (falah). Next, Islam conventional western
development in
stress on economic justice and faireness in the approach are
conventional western
distribution of income and wealth. Lastly, the quantitative and
approach are
development philosophy relies on local talent and uses qualitative. It involveds
quantitative and
physical resources incolving the entire ummah. calculation such as GDP,
qualitative. It involveds
oer capita income,
calculation such as GDP,
Islam is a way of life. Its system is complete and saving, investment,
oer capita income,
encompasses all aspect of life such as Islamic economic infrasture and
saving, investment,
system, Islamic political system and Islamic moral development project
infrasture and
system. These are all inter-connect and work together
development project
in perfect harmony and there is no conflict between the
welfare in this world and the hereafter.
Meanwhile Islam
ultimate objective
Meanwhile Islam
economic development
1.8 Source of growth from the Islamic Perpectives ultimate objective
is not merely material
economic development
welfare in this world but
i. Investible Resource is not merely material
extendes to hereafter
welfare in this world but
(falah).
Investible resourece are resource essential for extendes to hereafter
economic growth. Such as plant and machinery. (falah).
Plant and machinery generate output and
creating a flow of income to the economy. From From the Islamic
the Islamic perpectives, to have such growth, the perpectives, to have
From the Islamic
economy need capital and the capital can be such growth, the
perpectives, to have
derived from two sources namely internal and economy need capital
such growth, the
external. and the capital can be
economy need capital
derived from two
and the capital can be
Internal source are normally from zakat, sources namely internal
derived from two
voluntary saving, force saving (EPF) and through and external
sources namely internal
taxes. It must be remember that Usuary (riba) is and external
considered haram. It is not allowed in Islam.
5
On the other hand, external source can be Internal source are
derived by borrowing from other Muslim normally from zakat
Internal source are
countries so as to minimize the riba based debt. voluntary saving, force
normally from zakat,
saving (EPF) and through
voluntary saving, force
ii. Human Resource taxes. It must be
saving (EPF) and through
remember that Usuary
taxes. It must be
An efficient labor force is important for economic (riba) is considered
remember that Usuary
growth. From the Islamic perpective, efficiency haram. It is not allowed
(riba) is considered
requires both professional and moral quality so in Islam.
haram. It is not allowed
as to get maximum contribution from the labor in Islam.
force. Meanwhile the conventional only
emphasizes professional quality.
iii. Entrepreneurship
Most economist agree that entrepreneurship is
the key economic growth. Entrepreneurship is
the creative ability of individual to seek profit by
combining resources to produce innovative
product.
1.9 Malaysian economic structure
The economic structure of Malaysia can be divided into the
following sectors:
Primary Sector: Malaysia’s economic development is largely
due to its wealth of natural resources in agriculture and
forestry. Some major produces in the country include :-
1. Peninsular Malaysia: Cocoa, Rice, Rubber, Palm and Oil.
2. Sabah: Coconuts, Rice, Rubber, Subsistence Crops and
Timber
3. Sarawak: Rubber, Pepper and Timber
Palm oil and rubber are the major foreign exchange earners in
the primary sector. In the 1960s, the country’s forest reserves
depleted at a high rate. Active steps have been taken to plant
high-value trees and various timber species.
6
Secondary Sector: Malaysia’s diversified manufacturing sector is the backbone of
its economy. The growth of the manufacturing sector is visible in its 30%
contribution to the GDP in 1999 as compared to 13.9% in 1970. Electronic
components contribute a significant share in Malaysia’s manufactures and exports.
It is the largest exporter of semiconductor devices and electrical goods and
appliances in the world.
Tertiary Sector: The service sector of Malaysia predominantly comprises Islamic
banking, finance, telecommunications and tourism. In an effort to attract foreign
direct investment, Malaysian Prime minister Najib Tun Razak introduced a variety of
measures for this sector. There are expectations of Malaysian IT spending to be at
$4.5bn in 2010 from US$4.2bn in 2009 due to economic recovery.