Panel Session: 'Malaysian Input-Output Analysis and Industrial Policy'

A panel discussion on Malaysian Input-Output Analysis and Industrial Policy was held on 5 March 2019 to discuss key findings from KRI's publication entitled “Structure of the Malaysian Economy: An Input-Output Analysis”, led by Dr Mohd Yusof Saari from Universiti Putra Malaysia. The session was moderated by Dr Nungsari Ahmad Radhi and received inputs from esteemed panellists including Professor Dr Rajah Rasiah, Professor Dr Jamal Othman, Dato’ Charon Mokhzani, Prof Jomo Kwame Sundaram and Tan Sri Datuk Dr Kamal Mat Salih.

Dr Yusof summarised the research outcome in four key findings:  firstly, the contribution of international trade to the Malaysian economy has been underestimated; secondly, the importance of economic interlinkages in policy consideration and analysis should be recognised; thirdly,  spillover effects and valued-added creation by firms located inside Free Industrial Zones (FIZs) have been lower than expected; and lastly, weak linkages between the Small and Medium Enterprises (SMEs) and large firms impede the growth of small-sized sectors in Malaysia.

As mentioned by Dato’ Charon Mokhzani, ex-managing director of KRI, the work started with the aims of understanding Malaysian sources of economic wealth and demystifying the multiplier effect of economic activities. While the claim that multiplier effect given undue importance in justifying a policy or project was treated with scepticism by some panellists, Prof Jomo Kwame Sundaram believed this issue should not be taken lightly as it has had real-world policy implications.

Academic scholars, namely, Professor Dr Rajah Rasiah, Professor Dr Jamal Othman and Tan Sri Datuk Dr Kamal Mat Salih, found the findings, like the lower-than-expected positive impacts of FIZs, to be consistent with the works they have done and seen in the past. Technical comments and suggestions were also given to improve the application of the input-output analysis. The comments, among others, include the merits of Computable General Equilibrium (CGE) by Professor Dr Jamal and the adoption of the perspective of a planner or government, instead of the capitalist or business owner, by Professor Dr Rajah Rasiah. Notwithstanding the methodological-related suggestions, the usage of the input-output analysis in understanding the economy was still recognised by the panellists as one of the many valid analytical methodologies.

Dr Yusof’s findings on SMEs were relatively well-received by the floor; especially with regards to the weak linkages between small and larger firms as well as the lower-than-expected domestic economic impacts of preferential policies for foreign-owned firms. Concerns were raised on how existing weak incentives to link domestic-owned smaller firms with foreign-owned bigger businesses could further hinder the expected technology transfer and, subsequently, impede the potential growth of SMEs in Malaysia.

The panel discussion ended with Dr Yusof highlighting the project intention in providing a user-friendly methodology and reader-friendly analysis in understanding the supply-side of the economy.

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