For UNDP Resident Representative Dr. Richard Leete, Malaysia sets an example for other developing countries. According to a UNDP case study conducted in cooperation with ISIS and MIER, the country has combined strategic and carefully sequenced trade liberalisation with investment in the education and livelihood of its people.

Trade Can Help End Poverty

By: Richard Leete

Malaysian development, which has emulated the outward-looking East Asian ‘miracle,’ is a classic example of using strategic, carefully sequenced trade liberalization to promote economic growth, poverty reduction and human development. Already, its achievements are providing a model for other developing nations. Now, however, multi-cultural Malaysia must determine how to continue to move up the economic value chain without giving up its foundation of caring for the poor.

The country has one of the most open economies in the world, with growth averaging 7 percent annually for the past generation. Most importantly, while more than 50 percent of Malaysians used to live in poverty in 1970, now only 5 percent do. And throughout these decades of progress, human development – expanding the choices people have to lead lives that they value – has gained substantially.

How did this happen? In short, Malaysia recognized that trade, growth and human development are closely related: Overall, trade ‘winners’ and ‘losers’ are dependent on factors such as, human and natural resource endowment, as well as the infrastructure development of a country, which then influence the ability to take advantage of trade opportunities and stimulates more growth.

Malaysia’s progressive liberalization has built on pragmatic macroeconomic management, establishing average tariff rates that compare favourably with most Asian countries and attracting foreign investment. As a result, the economy has undergone remarkable structural change, from one based on the export of primary products to one of the world’s leading exporters of semi-conductors and electronic components.

At the same time, Malaysia has placed great value on investing in its people, especially health, education and women’s empowerment. Thus levels of child and maternal mortality in Malaysia are now as low as the world’s most advanced countries. The nation also has designed compensatory policies, such as micro-credit schemes, to help the poor deal with the transition costs of adjustment and benefit from the open trading regime.

These pro-poor affirmative actions have transformed the lives and livelihoods of the rural poor in particular, as is documented in the new United Nations Development Programme case study, in partnership with the Institute of Strategic and International Studies (ISIS) Malaysia and the Malaysian Institute of Economic Research (MIER) Malaysia: International Trade, Growth, Poverty Reduction and Human Development. Export-oriented industries that have created modern-sector employment opportunities, especially for women, and raised incomes, contributed significantly to reducing poverty. In turn, the country’s healthier, more educated population and improved physical infrastructure, as well as political and economic stability, have been instrumental in attracting foreign investment.

Thus, Malaysia has become a ‘winner’ by acknowledging the pivotal role that the public sector should play in creating the enabling environment to support successful human development and export-led economic growth. Such investment for competitiveness, as part of a bold agenda for national policies, is further highlighted in another United Nations Development Programme report, the recently launched Asia-Pacific Human Development Report 2006, Trade on Human Terms.

And what next? Malaysia is well-positioned to take advantage of future growth opportunities, but the extent to which it will succeed will be contingent on the economy’s capability in further raising its level of competitiveness. Labour-intensive, export-oriented industries are becoming more vulnerable to competition from emerging economies, especially China and India.

For the future, the challenge is thus for Malaysia is to continue on the growth path in a context of increasing globalization and regionalization – but trade is no ‘magic bullet.’ In particular, the nation must make even greater investments in human development, with an emphasis on knowledge, innovation and ideas, as envisaged in the Ninth Malaysia Plan, 2006-2010. In so doing, Malaysia can nurture a ‘first-class mentality,’ eradicate hardcore poverty and shrink the national poverty rate from its already-low level by another half. It thus can continue to be a role model for other developing countries.

Richard Leete is the United Nations Development Programme (UNDP) Resident Representative in Malaysia, Singapore and Brunei Darussalam.

[ Back ]