Resource Abundance and Economic Development

By R. M. Auty | Go to book overview

9 Competitive Industrialization with Natural Resource Abundance: Malaysia

MAHANI ZAINAL ABIDIN


9.1 INITIAL CONDITIONS

Malaysia is classified in this study as a small resource-abundant country (see Table 1.1). As such, it is one of only a handful of resource-abundant countries (the others comprise Botswana, Chile, Oman, and Thailand) that escaped the low growth staple trap that such countries have commonly experienced in recent decades. Rather than falling into a staple trap, Malaysia systematically diversified its economy from slow-growth commodities to high-growth commodities and then into competitive manufacturing (Table 9.1).

The natural resource endowment of Malaysia is favourably more diversified than the endowments of many small resource-abundant countries. It includes cropland, forests, and minerals whose relative importance has changed over time. The tin industry started in the early nineteenth century when the Dutch commercialized production. Rubber was first cultivated in Malaysia at the end of the nineteenth century and by 1930 it occupied two-thirds of the cultivated area. By the time Malaysia gained independence in 1957 tin and rubber were the two main contributors to GDP, and the combined share of natural resources in GDP was 45 per cent. However, a diversification began into palm oil in the late 1960s in order to reduce dependence on rubber when prices were falling. About the same time, forest resources in the form of sawlogs and sawn timber began to be leading primary commodities. Subsequently, the discovery of crude petroleum in the mid-1970s and then liquefied natural gas (LNG) offset a decline in tin production (that was caused by depletion of deposits, rising costs, and plummeting prices). In this way, the structure of primary exports steadily diversified and helped cushion the impact of individual commodity price shocks (Table 9.2). It thereby sustained an unusually stable and large stream of resource rents whose favourable consequences are discussed in later sections.

If the nature of the natural resource endowment was relatively favourable, however, the presence of ethnic tensions was not, at least on first sight. In 1980 the Bumiputeras 1

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