The Comparative Economic Performance of Malaysia : An Analysis

Abstract

A large difference in income today among East Asian countries was brought about mainly by differenteconomic growth rates in the second half of the twentieth century. How do we explainthis difference? Neoclassical economists would argue that it was due to difference in the rates ofcapital formation and export growth. This is true, but the question still remains as to why theydiffered. This paper, focusing on Malaysia, explains its relative performance in terms of institutionsand culture. Due to the growing influence of neo-institutionalists, institutions have beengaining importance, but culture is still an unpopular subject among the social scientists who arelooking at the cause of development. But if we ignore it, it is difficult to explain the better economicperformance of South Korea vis-à-vis Malaysia (or more generally, Northeast Asian countriesvis-à-vis Southeast Asian countries). Of course, culture is not the only explanatoryvariable. Neo-institutionalists are right in emphasizing the importance of institutions. Forexample, the better performance of Malaysia vis-à-vis the Philippines and Indonesia seems to belargely due to the fact Malaysia could make its institutions more favorable to economicgrowth. But we also have to recognize the fact that culture influences people's economic decision, shapes institutions, and mediates their effect on economic growth.