A TYPOLOGY OF MALAYSIA'S TRADE FLOWS (1990-1997): STRUCTURAL SHIFTS IN THE MERCHANDISE TRADE BALANCE

Abstract

Malaysia's merchandise trade flows between 1990-1997 is decomposed into intra-industry trade (IIT) and net trade (NT). NT is further decomposed into net exports and net imports to evaluate the changing structure of trade on the merchandise trade balance. The Grubel-Lloyd (GL) index was used to indicate the share of IIT in total trade (TT). This accounting framework shows that total trade in the electronic sector (GL > 0.7) increased from 28 percent of TT in 1990 to 45 percent in 1997 with SITC 776 (GL > 0.91) accounting for 13 to 20 percent of Malaysia's TT for the various years. Over the study period, the trade share of the primary sector decreased from 30 percent of total trade (TT) to 16 percent with the surplus of the primary sector decreasing from 14.87 percent of TT in 1990 to 5.42 percent in 1997. The manufacturing sector is always at a deficit although narrowing from -12.24 percent of TT in 1990 to -4 percent in 1997 with some fluctuations in the intervening years. The factors that possibly contributed to the increased internationalization of production as demonstrated by the increasing GL indices from 0.416 to 0.556 are also examined. Vertical IIT rather than horizontal IIT seem to prevail. Government policy like the promotion of the multimedia super corridor does seem to have an impact on Malaysia's trade structure, and subsequently on the structure of the merchandise trade balance.

JEL Classification: F10

Keywords: Malaysia, Trade balance, Intra-industry trade, Typology of trade