Export-led growth and structural change: evidence from Malaysia

Many studies have tried to establish the causal link between export expansi on and economic growth. This contribution is to recognize that structural c hanges will change the sources of growth and this will affect the export-gr owth relationship. A country case study approach is used focusing on Malays ia, a country with one of the world's highest sustained growth rates and a long history of commodity trade. We use VAR analysis of Malaysian quarterly trade and GDP growth from 1965 to 1996. Trade data are disaggregated into primary and manufactures exports and causality tests are applied to the ent ire period as well as two subperiods - the 1965-1980 period when policy emp hasis was on import substitution and the 1981-1996 period when policies fav oured export-led growth. Statistical tests confirm export-led growth for th e full period and for the period to 1980 but tests on the 1981-1996 period show growth causing exports. Primary exports had a stronger direct impact o n economic growth than manufactures. The weakening support for export-led g rowth after Malaysia shifted to an export-oriented development strategy is associated with structural changes associated with industrialization. Inter action among trade and growth variables becomes more complex with a broaden ing export base and more diverse sources of growth.