1

PLANOFPRESENTATION

1.  Introduc+on

2.  Exportperformance

3.  Produc+onandtechnologicalstructure

¡  Value-addedcontentandunitlaborcost

¡  Sectoralmul+pliers:value-addedandcompensa+onofemployee

4.  Tradefromtheperspec+veoffactorpropor+on

¡  Factorintensityinexportandimportflows

¡  Skillcontentinexportandinimportflows

5.  Conclusion

2

INTRODUCTION:TRADEOPENNESS

3 Source:WDI

Note*tradeopennessismeasuredby(𝑋+𝑀/𝐺𝐷𝑃 )𝑥 100

•  Malaysiaisaveryopeneconomy.

•  ExceptforSingapore,MalaysiaisthemostopeneconomyinASEAN.

-

50

100

150

200

250

300

350

400

450

500

2000

20

01

2002

20

03

2004

20

05

2006

20

07

2008

20

09

2010

20

11

2012

20

13

2014

20

15

2016

Perc

enta

ge (

%) Singapore

Thailand

Indonesia

Malaysia

China

EXPORTS,IMPORTS,NETEXPORTS&GDP

4

Source:BNM&EPU

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000 20

00

2001

20

02

2003

20

04

2005

20

06

2007

20

08

2009

20

10

2011

20

12

2013

20

14

2015

20

16

RM

, Mill

ion

Total Exports Total Imports Net Exports GDP

Malaysia’stradevolumeisgrowingrapidly,includingthatofexports,especiallyaUer2008.Netexportisratherstablebecauseimporttooisgrowingasrapidlyasexports.MalaysiaalwaysexperiencesfavorabletradebalanceExternaltradescontributesignificantlytotheeconomicgrowthMalaysianeconomicgrowthnowrelieslessonexternaltradesthanbefore.

MALAYSIA’STOP5EXPORTSHARE

58.8%

3.9%2.6%2.9%

2.7%

29.2%

2000

49.4%

5.8%3.7%

3.3%

3.6%

34.2%

2005

35.8%

7.1%

7.0%4.7%5.2%

40.3% 2015

36.6%

7.5%6.9%4.8%

5.3%

38.9%

2016

*Electrical&Electronic(E&E)andMachineryac+veinGVCs

PRODUCTMIX:DETAILAGGREGATION

¡  Palmoil

o  PalmOil

o  Fats&Oil

¡  Machinery

o  Machinery&EquipmentSpecializedforPar+cularIndustries&Parts

o  Hea+ngandCoolingEquipment&Parts

6

¡  E&E

o  Semi-conductors

o  ElectricalApparatus&Parts

¡  Oil&Gas

o  CrudePetroleum

o  RefinedPetroleumProducts

¡  Chemicals

o  Fer+lizers,Manufactured

o  HalogenatedDeriva+vesofHydrocarbon

Thefollowingaresomeofproductsexportedunderthemainexportcategories(input-outputclassificaUon):

WHATAREGVCS?

Valuechain-fullrangeofac+vi+esthatfirmsperformtobringaproductfromitsconcep+ontoend-useandbeyond

Theac+vi+esthatcompriseavaluechaincanbecontainedwithinasinglefirmordividedamongdifferentfirms

BEFOREFRAGMENTATION

SL

SLSL

SL SLPB:Produc+onBlockSL:ServiceLink

AFTERFRAGMENTATION

FRAGMENTATION

METHODOLOGY

¡  I-OanalysisisappropriateforstudyofGVCs

¡  Theinputfromonefirmorasubsidiaryofthefirmisusedasaninputforanotherfirm

¡  Theinterna+onalfragmenta+onofproduc+onfocusesontheimportedinputsharesofgrossoutput,totalinputsorexports

¡  Mul+plierscalculatedusingfollowingformula:

9

Whereν=primaryinputincludingvalueaddedcoefficient,; b=Leon+efcoefficient,and

σ=mul+plierforsectork

METHODOLOGY

¡  Thepaper uses standard decomposi+onof output growth analysis, akribu+ngoutput growth to Domes+c demand expansion, Export demand expansion,IntermediatedemandexpansionandImportsubs+tu+on

¡  Underequilibriumcondi+ons,openinput-outputrela+oncanbepostulatedas:

X=D+W+(E-M)Where;X=vectorofgrossoutputD=vectorofdomes+cfinaldemandW=matrixofintermediatedemandE=vectorofexportdemandM=vectorofimports

10

Domestic demand

External demand

METHODOLOGY

Outputgrowth(1)

∆X=Rμ1∆D+R∆E+Rμ1∆AX0+R∆μ(A0X0+D0)isdecomposedintothatdueto:(2)domes+cdemandexpansion(3)exportdemandexpansion(4)intermediatedemandexpansion(5)importsubs+tu+ondemand

11

(1) (2) (3) (4) (5)

SOURCESOFDATA

12

¡  Malaysia’sinput-outputtablesfortheyears1991,2005and2010.

¡  Deflateallthetablesintoacommonbaseyear.

¡  Aggrega+ngandconformingallthethreeyears’classifica+ons

¡  Weightedaverageusingsectoraloutputasweight

¡  GVCanalysisexaminesproductsexportedfromMalaysia

SOURCESOFOVERALLOUTPUTGROWTH

SourceofDemand Formula1Overall

1991-2005 1991-2010ExportDD R(E1-E0)% 51.04% 43.62%Domes+cDD R(μ1(D1-D0))% 12.44% 25.98%IntermediateDD R(μ1(A1-A0)X0)% 7.73% 9.36%ImportSubs R((μ1-μ)(A0X0+D0))% 28.80% 21.05%TOTAL 100.00% 100.00%

13

§  1991-2005period,exportdemandthemaindrivertheeconomy’soutputgrowth,followedbyimportsubs+tu+on.

§  1991-2010period,exportdemandasthemaindrivertooutputgrowthbecomessmaller.§  ExportdemanddecreasingbecauseofdecreaseinElectrical&Electronic(E&E)and

Machinery.

SOURCESOFOUTPUTGROWTHINRESOURCEBASED&NON-RESOURCEBASEDINDUSTRIES

SourceofDemandResourceBased Non-ResourceBased

1991-2005 1991-2010 1991-2005 1991-2010ExportDD 57.33% 49.87% 48.39% 39.64%Domes+cDD 4.04% 17.86% 15.98% 31.14%IntermediateDD 8.02% 6.90% 7.60% 10.91%ImportSubs 30.60% 25.37% 28.04% 18.30%TOTAL 100.00% 100.00% 100.00% 100.00%

14

§  ResourceBasedindustry’soutputgrowthdependenceonexportdemandislargerthanthatofNon-ResourceBasedindustry.

§  Inbothtypeofindustries,Domes4cDemandseemstobecomemoresignificantovertheperiodincontribu+ngtooutputgrowth.

§  Importdependenceisdecreasingandimportsubs+tu+onisdecreasing.§  NotethatResourceBasedandNon-ResourceBasedindustriescoverallindustriesinMalaysia

(includingnon-manufacturing).

EXPORTORIENTATION:UNITLABORCOSTANDVALUE-ADDEDCONTENT

ExportRaUo UnitLaborCost Value-AddedContent

2005 2010 2005 2010 2005 2010Malaysia 0.36 0.31 0.09 0.13 0.31 0.39Manufacturing 0.54 0.53 0.04 0.06 0.17 0.20

Manufacturing

ResourceBased 0.38 0.38 0.38 0.38 0.185 0.18Non-ResourceBased 0.69 0.81 0.69 0.81 0.15 0.25

Manufacturing(Top5Export)

Oil&Gas 0.40 0.42 0.01 0.04 0.433 0.52PalmOil 0.46 0.4 0.02 0.02 0.12 0.06Chemicals&ChemicalProducts 0.59 0.44 0.04 0.04 0.27 0.22

Machinery,Equipment&Parts 0.87 0.89 0.05 0.08 0.25 0.26

Electric&ElectronicProducts 0.68 0.92 0.03 0.08 0.09 0.27

15

Note:1.( 𝑥/𝑄 ),2.CEtooutputra+o,3.VAtooutputra+oDatausedforcalculaDonbasedonMalaysiaInput-OutputTable,2010Source:MIER

EXPORTORIENTATION

¡  Generally,Malaysiaexports30%ofofherdomes+cproduc+onofoutput.Butthatofmanufacturingsectorwasabout54%.

¡  Exportra+odeclinesfrom0.36in2005to0.31in2010

¡  Withinthemanufacturingsector,thenon-resourcebasedexports(NRB)industrycontributedbiggershareofexport,accountedfor81%in2010(comparedto69%in2005).

¡  E&Eisthemostexportoriented,expor+ng92%0fitsoutputwasexportedin2010(68%in2005).Similarly,forthemachineryproducts,expor+ngin2010-89%(In2005,87%).

16

UNITLABORCOST

¡  Malaysia’singeneralhasunitlaborcostofRM0.13in2010,thatformanufacturingwasevenloweratRM0.06in2010(RM0.04in2005).

¡  UnitlaborcosthigherforNRBmanufacturing(0.81)thanRBmanufacturing(0.38)in2010.

¡  UnitlaborcosthighestforE&Eandmachinery(0.08)in2010,whilethelowestisforpalmoil(0.02).

17

VALUE-ADDEDCONTENT

¡  VAcontenthasrisento39senperunitofoutputin2010from31senin2005.

¡  ManufacturingsectorVAcontentof20senislowerthanthena+onalaverage.

¡  VAcontenthigherforNRBthanRBproductsin2010.

¡  VAcontenthighestforoil&gas(0.52)andlowestforpalmoilproducts(0.06).

MULTIPLIER ANALYSIS

ExportRaUo ValueAdded

MulUplierCompensaUon

EmployeeMulUplier 2005 2010 2005 2010 2005 2010Malaysia 0.36 0.31 0.62 0.70 0.17 0.20Manufacturing 0.54 0.53 0.47 0.56 0.12 0.13 ManufacturingResourceBased 0.38 0.38 0.59 0.65 0.14 0.14

Non-ResourceBased 0.69 0.81 0.36 0.41 0.10 0.12 Manufacturing(Top5Export)Oil&Gas 0.40 0.42 0.75 0.82 0.05 0.07PalmOil 0.46 0.40 0.75 0.81 0.25 0.19Chemicals&ChemicalProducts 0.59 0.44 0.59 0.59 0.11 0.12

Machinery,Equipment&Parts 0.87 0.89 0.42 0.42 0.09 0.12

Electric&ElectronicProducts 0.68 0.92 0.31 0.40 0.09 0.12

18

VALUEADDEDMULTIPLIER

¡  Valueaddedmul+plierforMalaysiahasincreasedfrom0.62in2005to0.70in2010.

¡  VA-mul+plierislowerinmanufacturingsector(0.56)in2010.¡  RBmanufacturinghashigherVAmul+plierthanNRBmanufacturing.¡  Fortop5exports,oil&gasandpalmoilhavehighestVAmul+pliervalues.

19

COMPENSATIONEMPLOYEEMULTIPLIER§  Compensa+onemployee(CE)mul+plieringeneralis0.17in2005,roseto0.20in

2010.§  CEmul+plierlowerformanufacturingat0.12and0.13in2005and2010

respec+vely.§  RBhashigherCEmul+plierthanNRB.§  PalmoilhashighestCEmul+plier(0.19).§  CEmul+plierforChemicals,MachineryandE&Eroughlysimilarin2010at0.12.

MULTIPLIERANALYSIS¡  Theeconomyingeneralhasbiggercapabilityingenera+nggrowthduring2005-10.

¡  VAandCEthatcanbegeneratedperunitofoutputformanufacturingislowerthanthatfortheoveralleconomy;implyingbiggerpoten+alforeconomicgrowthisfoundinnon-manufacturingsector

¡  Withinmanufacturing,RBhashigherpoten+althanNRBingenera+ngVAandCE.

¡  The above mul+plier analysis shows that Malaysia ability in genera+ng economicgrowth and CE relies more in non-manufacturing. If manufacturing is to beconsidereditsRBhasthebiggerpoten+al.

¡  It impliesMalaysiapoten+als inmanufacturing, including itsNRBcanbeexploredfurther.

¡  E&E has the among lowest VA and CE mul+pliers, implying its contribu+on toeconomicgrowthcomesfromvolumeratherthanperunitcapability.

¡  LookingatCE,takenotethatallsectorshavelowerCEmul+plierthanna+onal.Thatmeans, lower non-manufacturing pays higher compensa+on than top 5 exports(exceptpalmoil). 20

SKILLCONTENT

21

Export-ImportSkillRaUo

Source:Bashir,MohamedSharifandA.Rashid,Zakariah(2005)SkillcontentinMalaysia'smanufacturingtrade:KeesingApproach

•  Accessingthecountry’sskillcontentofexportsandimports.•  Sectorally,ingeneralskilllevelofMalaysianworkforceislow.•  Malaysianetimporterofpropor+onalskilledbecausera+olessthan100•  Malaysiaisanetexporterofsemi-skilledcontent

¡  Exportscontainednotonly largernumberofunskilled thanskilled labor,theunskilled labor content ishigher thanwhat is found in imports. Inotherwords,Exportsflowscontainedmorelow-skilledworkersthanwhatwasfoundinimportflows.

¡  Malaysia employed smaller number of skill workers in exports but itsimportflowscontainalargernumberofskilledworkers.

¡  Malaysia’scompara+veadvantageinexportliesonlow-skilledgoods.

¡  Numbers of professionals and semi-skilledworkers employed for exportflowscomparedtoimportflowshadrisen. Itimplies,theskillcontentofexportsandimportshavebeenimprovingovertheyears.Butitiss+llforfromthedesiredra+o.

22

SKILLCONTENT

SKILLCONTENT

Malaysiahasabigpoten+alinimprovingcompara+veadvantageintheproduc+onofgoodsusingtechnical,skilledandsemi-skilledworkers. 23

Skill'sShareforExportsandImports(IncludingPetroleum)

Source: Bashir, Mohamed Sharif and A. Rashid, Zakariah (2005) Skill content in Malaysia's manufacturing trade: Keesing Approach

SKILLCONTENT

¡  Exportperformanceistellingusaboutonlyone-halfofthetwosidedtradeperformances.Thusexportperformanceshouldbeanalyzedinrela+ontothatofimport.

¡  Eventhatexportperformanceshouldbeanalyzedinrela+ontotheeconomy’sproduc+ontechnologyandskillsets.

¡  Analyzingfactorcontent,includingworkers’skills,inexportinrela+ontoitsimportwillshedaclearerpictureofacountryexportperformance.

¡  AsmallopendevelopingeconomylikeMalaysiashouldadopttradeandindustrialpolicyappropriatetoherlevelofproduc+ontechnologyandskillsetavailable;thisisalsoapplicableunderthecurrentintrusionof4thIndustrialRevolu+on.

24

POLICYIMPLICATIONS§  It is necessary to increase par+cipa+on in GVCs: VA for semi-conductor

devices(74)andTV,Radio&transmiker(75)low;butVAforcrudepalmoil(21)high

§  Mul+plierlowestforsemi-conductordevices(74)andTV,Radio&transmiker(75)

§  ItiscrucialtoincreaseVAtoensureeconomicgrowth

§  Sophis+ca+onindexinthoseproductsislow

§  WhileideallyweshouldaimforhighrankedinbothVAandsophis+ca+onindexofourexports,mostofoursarehighinVAbutlowinsophis+ca+onindex(normallyfoundinprimarycommodity)orworses+lllowinboth(normallyfoundinE&Eandwearingapparels).

§  Produc+vityandtechnologicalsophis+ca+onshouldbeupgraded

§  Ifabovenotdone,thentherewillbepar+cipa+oninGVCswithoutmuchgaintothecountrythathostsGVCs 25

POLICYIMPLICATIONS

Fosteringenvironmentforknowledge-intensive

produc+on

Enhancinginvestmentincen+ves,including

thoseforFDI

Upgradinghumancapitalbyreformingthelabormarketanditssupplyside,the

educa+onsector

Akrac+ngknowledge-intensiveandtechnology-intensiveinvestmentsand

discouraginglabor-intensiveinvestments

Encouragingtechnologytransfer

EnhancingSMEdevelopmentforamoresustainableandinclusive

industraliza+on

Sepngupscienceandtechnologyparks

26

StrategiestakeninMalaysiatoincreasebenefitfrompar+cipa+oninGVCs:

CONCLUSION

¡  Industrialandtradepolicyshouldbeviewedaspartandparcelofna+onaleconomicpolicy,especiallywithregardstovaluecrea+on.

¡  Fragmentedproduc+onnetworksandglobalvaluechains(GVCs)characterizetradeandinvestmentstoday

¡  Keysectorsintheeconomymaybebasedonfactorendowmentsindeterminingcompara+veadvantage,whichunderdynamicsepngcanbecreatedthroughstructuralreform.

¡  Whilestructuralreformisalwaysrelevantatall+me,phasingoutitsimplementa+onandpriori+zeamongstitsvarie+esismorecri+cal

¡  Itisnotenoughtopromoteacountrytopar+cipateinGVCswhoseeconomicandsocialimplica+onsmustalsobelookedinto

¡  WhileVAisimportantinensuringeconomicgrowthproductsophis+ca+onwillensuresustainabilityineconomicdevelopmentandgrowth

27

28

THANKYOU