Understanding Economic Development: Malaysian Economy

1. Malaysian EconomyBachelor of Business Administration (BBA) Professor Dr. Ahmad Bin Othman School of Business and Management University College of Technology Sarawak (UCTS) 96000 Sibu, Sarawak

2. Today’s Agenda (Week #2) Understanding of Economic development Clark and Fisher Model of Development Malaysian Economic Development

3. Economic Development Understanding of

4. Economic Development General discussions ……. Economic development is a term that economists, politicians, and others have used frequently in the 20th century. The concept, however, has been in existence in the West for centuries. Modernization, Westernization, and especially Industrialization are other terms people have used when discussing economic development.

5. Economic Development General discussions ……. Economic development is generally referred to the sustained, concerted effort of policymakers and community to promote the standard of living and economic wealth in a specific area. It involves multiple areas including development of human capital, critical infrastructure, regional competitiveness, environmental sustainability, social inclusion, health, safety, literacy, and other initiatives. The scope of economic development includes the process and policies by which a nation improves the economic, political, and social well-being of its people.

6. Economic Development • Economic Development …. A definition • Economic development is the development of economic wealth of countries, regions or communities for the well-being of their inhabitants. • From a policy perspective, economic development can be defined as efforts that seek to improve the economic well-being and quality of life for a community by creating and/or retaining jobs and supporting or growing incomes and the tax base

7. Economic growth Economic development differs from economic growth. Economic growth concerns about an increase in a country's real level of national output which can be caused by an increase in the quality of resources (by education etc.), increase in the quantity of resources & improvements in technology or in another way an increase in the value of goods and services produced by every sector of the economy. Economic Growth can be measured by an increase in a country's GDP (gross domestic product). On the other hand, economic development is a policy intervention endeavor with aims of economic and social well-being of people.

8. Economic growth Economic growth = Growth of national income of the country It increases in a net national product in a given period of time say a year The country will register economic growth only if per capita income was gone up when the national income growth at a higher rate than the growth rate of population

9. Model of Development Clark and Fisher

10. Model of Development Who are Clark and Fisher?

11. Model of Development John Bates Clark ……. Biography Was born on January 26, 1847 and raised in Providence, Rhode Island. Graduated from the Amherst college in the age of 25. 1872-1875 attended University of Zurich and University of Heidelberg, where studied under Karl Knies (one of the leaders of German Historical School) After return to US, taught history, economics and other subjects in the Carleton, Smith and Amherst colleges. In 1895 got a position in Columbia University (John Hopkins University) 26/1/1847 – 21/3/1938)

12. Model of Development John Bates Clark ……. His work Early works – critics of capitalism, reflecting the influence of the German socialism. Competition is not a universal remedy. “….. We do not eat man … but we do it by such indirect and refined methods that it does not generally occur to us that we are cannibals” (Clark, J.B., 1878, How to Deal with Communism). Change of views, finishes the first work “THE PHILOSOPHY OF WEALTH (1886)” “ …. He was convinced that pure competition was the natural and normal law by which the economic order obtained justice” (Everett, J.R., 1946, Religion in Economics) 26/1/1847 – 21/3/1938)

13. Model of Development John Bates Clark ……. Main works The Philosophy of Wealth (1886) The Distribution of Wealth (1899, 1902) Essentials of Economic Theory (1907) Social Justice without Socialism (1914) 26/1/1847 – 21/3/1938)

14. Model of Development Irvin Fisher ……. Biography Was born on February 27, 1867, New York. Since childhood he had a good mathematical abilities and flair for invention. Graduated from Yale in 1888 with BA degree In 1891 he was granted Yale PhD in Economics Teacher Maths, Professor of Economics, Yale University 27/2/1867 – 29/4/1947)

15. Model of Development Irvin Fisher ……. Publications Mathematical Investigations in the Theory of Value and Prices (1892, 1961). The Nature of Capital and Income (1906, 1927). The Purchasing Power of Money (1911, 1920). Elementary Principles of Economics (1912). Stabilizing the Dollar (1920). The Making of Index Numbers (1922, 1927). The Money Illusion (1928) The Theory of Interest (1930, 1961) Booms and Depressions (1932) 27/2/1867 – 29/4/1947)

16. Model of Development Clark Fisher Model of Development Two economists, Fisher and Clark put forward the idea that economy would have three stages of production. The model uses percentages employed in each sector. It shows how as economy grows the relative importance of different sector changes.

17. Model of Development • The three stages are: • Primary production • Secondary production • Tertiary production

18. Model of Development • Primary production • Is related to activities of extracting raw materials through agriculture, mining, fishing, and forestry. • Low income countries are assumed to be dominated by primary production. • These are relatively primitive economies Primary Sector

19. Model of Development Secondary Sector • Secondary production • Is related to the growth of manufacturing and construction sectors • Middle income countries are often dominated by secondary production • To fulfill the growing demand in industrial goods, leads to decrease of manufacturing

20. Model of Development • Tertiary production • Is concerned with the provision of services, such as • education • healthcare • financial services • tourism • This sector dominates in high-income countries • This change is driven by an increase in productivity per employee Tertiary Sector

21. Model of Development … to summarize • Increased productivity in agriculture frees people to work in manufacturing. • Increased manufacturing productivity and increased income means people spend proportionally less on agricultural goods, • and then less on manufacturing goods than on services.

22. Model of Development • Quaternary production • The quaternary sector of the economy is an extension of the three-sector hypothesis of industry. • It principally concerns the intellectualservices: • information generation • information sharing • consultation • education • R&D • It is sometimes incorporated into the tertiary sector but some argue that intellectual services are distinct enough to warrant a separate sector. • This sector evolves in well developed countries and requires a highly educated workforce Quaternary Sector

23. Model of Development

24. Model of Development Another Clark……. Colin Grant Clark Was born on November 2, 1905 in London, England. Graduated in Chemistry in 1928. 1928-29, worked as research assistant at the London School of Economics. Lecturer of Statistics in Cambridge, 1931-38. 1938-46, worked with Queensland Government, Australia 1951, seconded to FAO in Rome 1952-69, worked with Oxford University as the Director of Institute for Agricultural Economics 1969-78, worked as the Director of the Institute of Economic Progress, Monash University 2/11/1905 – 4/9/1989)

25. Model of Development Colin Grant Clark ……. Main works (not all) National Income and Outlay, 1937 Conditions of Economic Progress (1940) Economics of Subsistence Agriculture, 1964 Population Growth and Land Use, 1967 Regional and urban Location, 1982 2/11/1905 – 4/9/1989)

26. Model of Development Colin Clark predicted…. “… as times goes on and communities become more economically advanced, the numbers engaged in agriculture tend to decline relative to the numbers engaged in manufacture, which in their turn decline to the numbers engaged in service” (Clark, 1960).

27. Development Malaysian Economic

28. Malaysian Economic Development Question Does the Malaysian economy following the economic development model as presented by Clark and Fisher?

29. Malaysian Economic Development Contribution of Agriculture, Manufacturing and Services Sector in Employment Services

30. Malaysian Economic Development Services Agriculture

31. Model of Development • Criticism of the model • There are many LDCs where the main sector is a service sector, without having a properly developed secondary sector. • Examples: • -Kenya (tourism) • -Malta (tourism, financial services) • -Cyprus (tourism, financial services) • -Hong Kong (financial services) • The model ignores the international economic context , not taking into consideration the import of manufactured goods

32. Factors determining the rate of Economic development Availability of natural resources The rate of capital formation Capital-out put ratio Technological progress Dynamic Entrepreneurship Rate of growth of population Social overheads like education & health Non-Economic factor

33. You Thank