12 The Effects of Exports on Productivity and Volatility: Evidence from Malaysian Firm-level Data Mona Haddad, Deborah Winkler, and Albert Zeufack
The large and rapid slowdown in economic activity since 2007 has resulted in even larger and more rapid declines in international trade, with potentially devastating effects on economic growth, value added, and employment in exportoriented developing countries. The situation is particularly serious, because since the 1980s developing countries have experienced large increases in the ratio of exports to gross domestic product (GDP) (Milberg and Winkler 2010). That change has led to a renewed interest in the merits and costs of export-led growth strategies, particularly for developing countries (Rodrik 2009). Using the example of Malaysia, this chapter addresses the gains from exports in the form of higher productivity and the risk of outward orientation in the form of volatility in output growth. Malaysia’s experience is particularly useful for our study because government policy gradually shifted from import substitution in the 1960s to export-oriented industrialization from the 1970s onward. Export promotion was “the vehicle for achieving the twin objectives—alleviation of poverty and restructuring of employment and the ownership of assets—of the New Economic Policy” (Khalafalla and Webb 2001). Moreover, since the establishment of a free-trade zone in Penang in 1971, Malaysia has successfully attracted multinational firms, initially from Japan and the United Sates and later from Europe. Export-led industrialization has transformed Malaysia into Asia’s thirdmost-open economy in trade terms (World Bank 2010). As a result, Malaysia’s combined exports of goods and services as a percentage of GDP more than doubled from 46 percent in 1974 to its peak of 121 percent in 1999
(see figure 12.1, panel a). In 2007, Malaysia was ranked the world’s 18th largest goods exporter, compared to 23rd in 1990 and 30th 1980. It exceeded the export volumes of much larger countries, such as Brazil, India, and South Africa. While exports grew strongly, imports expanded even more quickly, resulting in a mostly negative contribution of net exports—that is, exports minus imports—to real GDP growth (see figure 12.1, panel b). This result reflects the country’s assembly-type export sector, which is characterized by a large import content (World Bank 2010). This chapter is structured as follows. In section two, we estimate the impact of exports on productivity at the plant level in Malaysia and also take plant-level characteristics into account. Section three focuses on the effect of sectoral exports on the volatility of output growth at the firm level and on the role of product and market diversification of exports. Section four concludes and makes some policy recommendations for Malaysia. The Effect of Exports on Productivity Motivation Advocates of the export-led growth hypothesis generally refer to the success stories of the Asian Tigers—Hong Kong SAR, China; the Republic of Korea; Singapore; and Taiwan, China—that were characterized by high and continuous growth and rapid industrialization between the early 1960s and the 1990s. That success is attributed to their exportoriented free-market economies. Most developing countries that followed an inward-oriented import substitution
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