Global Shocks and the Growth Constraints in the Malaysian Economy 1970-2012

Abstract

A structural dynamic model is developed to assess Malaysia’s external and internal constraints prior to the East Asian crisis. The model computes the resource requirement to move the economy to a more sustainable form of development. In addition, we examine how the 2008 global financial crisis affected economic performance. The calibrated results clearly show the trade-off between the rate of investment and economic growth under the fiscal and foreign exchange constraints. Our results also highlight the importance of the external trade and FDI to achieve a modest growth.