Malaysia: A Success Story Stuck in the Middle?

Abstract

This study examines the Malaysia development record in the context of widespread concerns that the country, and others like it, may encounter major difficulties in graduating to the ranks of high-income economies. It stresses the country's rapid socioeconomic development, built on openness, reasonably competent macroeconomic management and attention to equity issues. It then investigates the country's significant slowdown in investment and economic growth since the late 1990s, and asks whether this trend is related to the more general graduation issue. Our principal conclusion is that the slowdown has less to do with the problem of graduation and more to do with a set of country-specific institutional and political economy challenges. Thus, the current concern within the country that it is in some sense 'stuck in the middle' points to the need for a set of major policy reforms to accelerate growth.