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Analysis of Trade Openness
Trade openness is a critical component of international trade and economics. Trade openness is a key enabler of economic growth by allowing for opportunities to grow and thus stronger opportunities of interaction. Trade openness is a key consideration for international interactions and something that all look up to. In this paper, while making reference to Malaysia, the trade openness of this country will be assessed. This will take a data driven approach with the relevant data being analyzed. This paper also discusses Malaysia’s exports, trade policy and the sources for its comparative advantage. Other scholars work will be considered in this analysis as well.
A comparison of the performance of trade in Malaysia indicates a widening surplus over time and thus a direct benefit from trade openness. The total imports that Malaysia reported in 2019 was 204.9 billion dollars. The total exports reported by this country within the same period was 238.09 billion dollars. Trade surplus is a situation where exports exceed imports and thus from the stated figures, Malaysia was in a surplus position. The openness index was therefore 1.2146 and this indicates high trade openness.
Malaysia Major Exports
The growth of the Malaysian economy has to a larger extent been dependent on exports. According to the World Bank report, Malaysian exports of goods and services account for 61.4 percent of the Gross Domestic Product. This therefore implies that economic growth of this country as measured by the Gross Domestic Product is mainly accounted for by exports. The exports of this country include electric and electronic products, chemicals, petroleum products, liquefied natural gas and palm oil. Still in the exports dimension, are countries for which Malaysia partners with. Malaysia partners with Singapore, China, Japan and the United States. The electric and electronic products according to the Malaysian Development Authority is consumer based. The country has this segment as the sector and therefore has majored in these exports. The electronic and electronic products from Malaysia are for entertainment, audiovisual, and multi media devices. These products are consumed all over the world and therefore the exports are diverse. Key among the electronic products exports by Malaysia is semi-conductors and microchips.
Still under exports is chemicals which are still exported by Malaysia. As an export, Malaysia majors on laboratory chemicals. As a matter of fact, the Malaysian Chemical Exporter is the largest exporter of chemicals around the world. The chemicals that Malaysia exports include laboratory based reagents and other liquid solutions. According to the Independent Commodity and Intelligence Services (2021), Malaysian’s chemicals rose by 20.5 percent with a record of 5.18 billion dollars as at February 2021. This implies that chemicals are an important product for exports.
The other product exported by Malaysia is petroleum products. For petroleum products, Malaysia has been reporting an increase over time and this has contributed to an overall increase in its exports. The petroleum products exported by Malaysia includes crude oil, hydro carbon gas liquids, natural gas liquids and kerosene products. The trend exhibited by exports of these products in Malaysia has been an increase in some years and a decrease in other years. Malaysia partners in this export with other countries such as Singapore, China, Japan, Australia and Thailand. This therefore implies a growing number in this product.
Under exports done by Malaysia is liquefied petroleum gas which is an important cooking commodity. The liquefied petroleum gas the Malaysian export council works hand in hand with the energy regulatory council. Malaysia also exports palm oil which it does to India and Indonesia as the biggest consumers of this product.
Malaysian Trade Policy
Trade policy by definition relates to a policy which relates to the flow of goods and services within the borders of a particular countries. Trade policies relate to movement of goods and services within the various boundaries. Malaysia’s trade policy therefore relates to its trade associations with other countries. Since its independence, Malaysia has continuously worked towards minimizing its trade barriers and therefore making its trade more open. In the recent years, Malaysia actually has an open trade and investment policy. The country has trade agreements that is the Regional Comprehensive Economic Partnership, the Malaysia Iran Preferential Trade Agreement and the Malaysia European Free Trade Area Economic Partnership Agreement and the Malaysia European Union Free Trade Agreement.
Specifically, the Regional Comprehensive Economic Partnership is a trade agreement for countries within the Asian region. Its main emphasis is on lowering and ultimately completely eliminating the tariffs on a range of goods and services. It therefore encourages open trade for better investment gains. The Malaysia Iran Preferential Trade Agreement is aimed at increasing openness and mutual trade relations and therefore increase competitiveness within the two countries. The Malaysia European Free Trade Area Economic Partnership Agreement and the Malaysia European Union Free Trade Agreement also work towards liberalization and consequently increased trade. Khan, Mehmood, Zakaria & Husnain (2018) concluded that what drives Malaysia’s international trade is its trade agreements and thus bound by the conditions under these agreements.
Malaysia’s Source of Comparative Advantage
In international economics, comparative advantage arises when a country produces goods and services at a lower opportunity cost than other countries. It may arise from the differences in technology or skills sets and differences in production costs or resource endowments. Malaysia’s comparative advantage is due to its resource endowment that gives the supply for exports such as palm oil and natural gas. The paper by Jayadi (2017) concluded that ASEAN countries that is Vietnam, Malaysia, Thailand, Indonesia, Philippines and Singapore obtained the investment destination status given their big nominal Gross Domestic Product due to their natural resource endowment.
Conclusively, Malaysia has exhibited trade openness in its international trade relations. The country exports diversified products both resource based and non-resource based. Its trade policy is open with the country having trade agreements with other countries.