Trade Performance

This report discusses the trade performance of Malaysia, focusing on the impact of globalization on trade relationships and the balance of payments. It provides an overview of Malaysia's economy, its trade relationship with India, and the fluctuations in its balance of payments. The report highlights the importance of understanding these factors for a better understanding of trade performance.

Trade Performance

INTRODUCTION...........................................................................................................................1
BACKGROUND.............................................................................................................................1
MAIN BODY..................................................................................................................................2
Section 1......................................................................................................................................3
Section 2......................................................................................................................................6
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Different states' trade performance appears to be a strong predictor of economic success,
also as-performing countries continue to post size and growth levels (Athukorala and Narayanan,
2018). Most of the developing nations entered the World Trade Organization (WTO) and took
reforms to open their markets. However, the result was not always consistently favourable with
exporting success remaining often disappointing. Main purpose of this report is to improve the
understanding regarding trade performance of specific emerging country. This report covers the
two major issues such as how globalization affects the trade relationship of particular country
and another issue is related to balance of payment. This assessment is based on the Malaysian
country and further evaluates trade performance of it.
BACKGROUND
Malaysia's economy is indeed the 3rd largest in South Asia after Indonesia and Thailand,
and it is the globe's 35th largest country (Saari, 2020). Labour demand in Malaysia is
substantially higher than in neighbouring countries such as Thailand, the Philippines,
Indonesia or Vietnam due to high number of knowledge-based industries and the deployment of
cutting-edge industrial production and digital economy technologies. The economy of Malaysia
is the 27th most populated country in the world according to Global Competitiveness Report
2019. Especially in comparison to almost every other ASEAN countries, people in Malaysia
enjoy assurance activities.
That is due to a rapidly growing export oriented economy; considerably lower national
income tax, increasingly inexpensive street produce and transportation resources, and a
completely supported single payer universal healthcare. For fact, since 2011 social security
programs with a direct money benefit payment entitled Cost of Living Assistance are now in
effect. The Malaysian market is mainly reliable and diverse with the high-tech items' export
earnings willing to stand at US $ 57.258 billion in 2015, the second largest in ASEAN after
Singapore. After Indonesia, Malaysia exports the 2nd highest amount and value of crude palm oil
worldwide.
In Malaysia, there are some main food crops which are very popular and rice is cultivated on
small farms. Given the significant gains achieved with the advent of enhanced plant variety and
industrial fertilizers and antioxidants, rice productivity decreased gradually throughout the 2nd
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half of the twenty century (Gavrilescu, 2018). The important reasons of this downturn were
adverse environmental conditions and the reduction of farm labor to work in industrial
manufacturing. Progressively insufficient in rice production, the nation was forced into making
up with imports, mostly from Thailand, for the deficiency.
The Malaysian government took strategies to improve its self-sufficiency in rice, primarily
by introducing programs to expand willingness to take risks and raise employment levels by
community farming schemes; demand started to grow by 2000, despite the continuing shortage
of labour. Cash crops predominate in polymer and palm oil. Although rubber's share in the GDP
has dropped sharply since the mid-20th century, rubber industry plays an essential role and
tightly linked to domestic production (Gaasland, Straume and Vårdal, 2020). After the 1970s,
plantations of palm oil have propagated, even at the detriment of rubber plantations. In the 21st
century, Malaysia had developed into one of the largest palm oil producers. Other growing cash
crops involve cocoa, cinnamon, coffee, tea, coconut and various fruits.
The combined value of export goods and services exports is 132.3 per cent of
overall country's GDP. The overall tariff rate imposed is 4.0 per cent, and there are 62 non tariff
schemes in place (Gordon, 2019). International trade is officially encouraged, and efforts have
been made to draw more flows, but lack of information could discourage competitive growth in
new investment. The financial system continues to stable and contribute in the economy to grow.
The highest level income and corporate taxation for individuals are 25 per cent. Certain taxes
also provide a levy on the income gains. The gross income tax is equivalent to 13.6 per cent of
gross domestic revenue. Over the last three years, average spending of government is 22.6
percent of the total GDP and budget deficits notched up 2.9 percent of GDP. Public debt is 56.2
per cent of gross domestic product.
MAIN BODY
There are majorly two issues which affect the overall economy as well as trade performance
of the Malaysia. The discussion is based on the globalization and how it affects the Malaysian
trade relationship and the other side, it includes the discussion on balance of payments which
indicates the financial aspect of the countries.
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Section 1
Globalization has played a significant role in Malaysia's development as a country, and its
further growth. Nearly any significant dimension of globalization including commerce, wealth,
labour mobility, infrastructure, and flows of knowledge has left strong markings on the economy
and culture of Malaysia (Indrawan and Rahman, 2020). In time, the natural world impact of
globalization has started to change the progress and overall performance. Such shifts involve the
economic transition of an environment which highly dependent on key resources such as tin and
rubber into one dominated by generated exports. Waves of migrants have formed the world,
particularly after the 19th century, into a multi - racial country. The performance of the company
adaptive as regards international trade has indeed posed a significant threat to world economic
crises. The implementation of Malaysia into the world economy can be distinguished by its
development of international trade and by its emotional connection of foreign direct investment
(FDI). For example, as a percentage of GDP the value of exported goods raised from 163.5 per
cent in 1986 to 269.0 per cent in 1996.
Trade relationship between India and Malaysia is really on an upward track. Trade has rising
and over four-fold since 2003 to 2013. Total trade of Malaysia with India was $13.38 billion
(RM42.12 billion) in 2013, a boost of 2.4 per cent compared to 2012. Export markets contracting
at US $ 8.17 billion (RM25.74 billion) by 12.2 per cent. Imports posted an immense 38.8 percent
growth to US $ 5.21 billion. India was among the trading partners during the year 2013 which
recorded growth of trade with Malaysia (Trade Relationship between Malaysia and India, 2020).
The figure below shows that perhaps the trade balance favoured by Malaysia from 2003 (US$
1.9 billion) to 2013 (US$ 3.0 billion) was on an ascending trend. Investment and trade with
India is in favour of Malaysia because both are active foreign allies in addition to participating in
trade. Malaysia and India are main FDI destinations. Both governments have created
constructive strategies on investment and initiatives to draw FDI inflows. Also, both countries
are rapidly becoming important sources of external investment.
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While two-way capital inflows have thus far been minimal between Malaysia and India, the
continuing capital inflows and rise in bilateral trade in recent times suggest that there has been
scope for increased investment flows between both the 2 nations. It is fascinating to see how the
various leaders are evolving in the era of economic globalization to raise the GDP of the country,
whereas multinational players including multinational companies, investment firms and even
non-governmental organisations are inevitably affecting national policy.
Considering the substantial systemic shift in its post-independence period, region remains
a free trade focused country. The taxation of exports and imports represented a large amount of
the GNP. Such a transparent environment such as Malaysia has also been exposed to investor
sentiment swings (Opeyemi And et.al., 2019). Its market is largely influenced in the intensity of
its development of international trade by the economics of its largest trading partners, especially
the USA and Japan. The State continues to allow exporters to plan for development. Rivalry with
the ASEAN Free Trade Agreement in particular, which comes into effect in 2001. Malaysian
export production and trade development in new countries have enabled producers to compete on
the world stage at the marketplace. Local and domestic suppliers were motivated to enjoy
economies of scale and expand their use of local production in their manufactured products
especially in intermediary and capital.
Malaysia's economic growth created an ever-increasing demand for manufacturing and
production workers. The lack of migrant workers for jobs in those industries came with that same
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higher demand for labor. International employees were hired to solve this crisis, because they're
seen as most feasible alternative. As per the estimation by the Ministry of Human Resources,
among Malaysia's 1,461 major foreign companies, these firms needed 314,955 particularly semi-
skilled labor (162,480) and unskilled workers (92,485). Many of these workers originated from
countries such as Malaysia, Myanmar, the Philippines and Thailand.
Malaysian economy was still very open-minded and it became more accessible during
from post-independence period. Trade ratio increased from about 100 per cent in the mid-1970s
to a high point of 220 per cent in 2000. The production and export level eventually started to fall
due to economic decline. Notwithstanding this, the market looks very much in the country which
enable with a exchange ratio of approximately 135%.
The nation received rapid strong growth mostly during pre-independence period, with
exchange as a major driver of growth. Economic growth during this time, however, has been
quite inconsistent (Poon, 2018). The significance of primary resources such as rubber and tin as
major determinants of production was a major cause of the uncertainty. Throughout that time,
these two products contributed for almost 80 per cent of total exports. The price swings of such
goods have influenced the financial system of country.
Malaysia was ranked on 13th and it has mild of political danger. Malaysia includes three
main communities of people like Malay, India and Chinese who live on each community in unity
and respect. They often work with each other to deal with issues that avoid significant disputes
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on May 1969. The regional front is made up of UMNO, the government of Malaysia, which also
included certain race groups as MCA (Malaysian Chinese Association) and MIC (Malaysian
Indian Congress) are working together towards sustainable society. As per AMB research, it has
been revealed that the process is increasingly implementing creativity that encourages people to
consider greater openness, fewer incentives and government participation in public contracts. In
addition, government has indeed been promoting foreign investment in economic sectors.
Therefore, in 2020, Malaysian will fulfil the vision of developing world.
Section 2
Balance of payments (BOP) monitors the overall transactions which have done by the
countries globally (Yunos, 2020). When finances go into a nation, the balance of payments
("BOP") is credited. A reduction is made whenever the funds leave any country. For example,
whenever a firm sells 20 shiny red sports cars to some other country, the BOP is credited. There
is a trade surplus, if a nation export value is more than it import value. There is a trade
imbalance, if a nation sells less than it imports. Below mention statistical data represent the
balance of payment (BOP) of Malaysia from 2010 to 2019. It has been clearly observed that, the
BOP throughout the years has huge fluctuation due to increases or decreases in the export.
Balance of Payment (BoP) for Malaysia was registered at 9,503,813 MYR million in
March 2020. It shows an improvement of 7,500.236 MYR million per Dec 2019 from the
previous result (Malaysia's Balance of Payment (BoP), 2020). Balance of Payment of Malaysia's
Current Account (CA) is modified on a timely basis, racking up 15,554,209 MYR million
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between Mar 2005 and Mar 2020, with 61 responses. In Sep 2008, the information reached at
high of 39,982,149 MYR million and a historic low of 978,280 MYR million in June 2013.
Balance of Payment for Malaysia remains active in CEIC and is confirmed by Statistics
Department. The research is organized as Malaysian under World Database which represent in
form of line chart in the graph.
The methodology of serial correlation is used to analyze the long-run and short-run
relationships among the actual Malaysian trade balance and the international exchange rate,
domestic and international revenues (Zainal Abidin, 2020). The findings say a possible
weakening of the ringgit exchange rate throughout the long term would boost the balance of
trade. It is also observed that global and domestic sales are critical indicators of trade balance.
The importance on trade balance of income distribution suggests that Malaysia is particularly
susceptible to external shocks. This uses an error detection formula to test the short-run
dynamics of the exchange rate impacts. The study of the frequency content implies that the
impact of the exchange rate on the balance of trade from past 10 years.
Below mention graph represent the financial or capital deficit account balance from 2017 to
2020.
Above statistical data shows the surplus or deficit value over the period. After 2018
Malaysia face the deficit condition due to higher import in comparison to export. In order to
maintain this situation, Malaysian government has to formulate appropriate strategy or make sure
to maximise their export rather than import of goods & services.
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Above column chart shows the growing trend of per capital GPD from 2010 to 2018. It is
observed that, per unit GDP in Malaysia was estimated in 2018 was 28176.40 US dollars, when
calculated by purchasing power parity (PPP). In Malaysia, GDP per Capita is comparable to 159
per cent of all global average when purchasing goods or services.
Across the 1960s and 1970s, Malaysia retained a good trade profile, reporting first ever
trade deficits from 1981 and 1982, as global markets for gold, crude oil, palm oil and rubber
are the largest exports, gradually decreased (Zainudin, Sok-Gee and Shahrin, 2018). Malaysia's
balance of trade, just like of several other main market producers, was negatively impacted by
the prolonged recession in manufacturing nations around the world in 1981–82. Nonetheless,
Malaysia reported trade surpluses from 1983 through 1986. A strong increase in exports and a
decline in imports in the 1990s resulted in trade surpluses, together with a relatively high deficit
in services.
However, exports decreased in the mid-20th century, but so were imports of making adjustments
used in the produce of electronics products in the country; this led to persistently high trade
surpluses.
The US Central Intelligence Agency (CIA) estimates that Malaysia’s economy had a
purchasing power parity of $ 94.4 billion in 2001, while imports reached $769 million, balance
of trade surplus of $ 93.631 billion. IMF estimates that Malaysia had $98.4 billion exports of
goods & services in 2000, and $77.6 billion imports. The credit for programs totalled $13.8
billion, with $16.7 billion in loans.
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CONCLUSION
From the above discussion it has been observed that trade performance of Malaysian county
is quite impressive. It is an open trade economy where there are very less restriction to trade with
other and in this country as well. Globalization play essential role for every country because it
provide huge opportunity to grow with the help of import or export of goods. It also offers
several opportunities to the domestic organizations to expand their business in the foreign
market. In addition, free trade helps in welcoming international companies to invest in the
country or generate lot of employment or other opportunities to grow economy. Along with this
balance of payment of Malaysia shows favourable results which help the economist to grow and
get the positive growth as well.
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REFERENCES
Books & Journals
Athukorala, P. C. and Narayanan, S., 2018. Economic corridors and regional development: The
Malaysian experience. World Development. 106. pp.1-14.
Gaasland, I., Straume, H. M. and Vårdal, E., 2020. Agglomeration and trade performance–
evidence from the Norwegian salmon aquaculture industry. Aquaculture Economics &
Management, pp.1-13.
Saari, M. Y., 2020. The impact of increase in energy prices on sectoral costs of production of the
Malaysian economy. International Journal of Management Studies. 14(2). pp.75-91.
Gavrilescu, C., 2018. Romanian agri-food trade performance and competitiveness in its first
decade of EU membership. Lucrări Științifice, Universitatea de Științe Agricole Și
Medicină Veterinară a Banatului, Timisoara, Seria I, Management Agricol. 20(2). pp.46-
55.
Gordon, A., 2019. Charting the Economy: Early 20th Century Malaya and Contemporary
Malaysian Contrasts.
Indrawan, I. W. and Rahman, M. P., 2020. SECTORAL ANALYSIS ON THE IMPACT OF
ISLAMIC BANKS TO THE MALAYSIAN ECONOMY. Journal of Islamic Monetary
Economics and Finance. 6(1).
Opeyemi, A. And et.al., 2019. Renewable energy, trade performance and the conditional role of
finance and institutional capacity in sub-Sahara African countries. Energy Policy. 132.
pp.490-498.
Poon, A., 2018. The transmission mechanism of Malaysian monetary policy: a time-varying
vector autoregression approach. Empirical Economics. 55(2). pp.417-444.
Yunos, N. D. M., 2020. ICT utilization and the information economy: The case of
Malaysia. Journal of Information and Communication Technology. 1(1). pp.45-54.
Zainal Abidin, I. S., 2020. Evaluating the Malaysian economy 2009-2018: growth, development
and policies.
Zainudin, R., Sok-Gee, C. and Shahrin, A. R., 2018. The Malaysian banking industry: policies
and practices after the Asian financial crisis. Routledge.
Online
Malaysia's Balance of Payment (BoP). 2020. [Online]. Available Through:
<https://www.ceicdata.com/en/malaysia/balance-of-payments-bpm6/balance-of-payment-
bop-current-account-ca >
Trade Relationship between Malaysia and India. 2020. [Online]. Available Through:
<https://www.eria.org/uploads/media/discussion-papers/Globalisation-and-Economic-
Development-Malaysia-Experience.pdf>
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