Given that in 1957, 71% of its export earnings were dependent on just two primary
commodities, it is hardly surprising that the Malaysian economy was highly susceptible to
the vicissitudes of international trade. This prompted the government to first embark upon
primary commodity export diversification drive. As a result, oil palm and timber emerged
as the major primary commodity exports. Malaysia’s industrialization was kick-started by
import-substitution in the 1960s. The 1960s saw a proliferation of a wide-range of importsubstitution
activities. In fact, a lot of existing consumer products marketed domestically
can be attributed to this decade of import substitution.
However towards the end of the 1960s, there were signs that import-substituting industrialization
had reached a saturated stage due to the small size of the domestic market. It
was apparent that further industrial expansion was possible only via an export-oriented
industrialization. Moreover the import-substituting industries could no longer absorb the
growing labor force and socioeconomic restructuring under the NEP promulgated in 1970
necessitated a rapid expansion of the modern sector of the economy. Hence, a strong
emphasis has been placed on export-oriented industrialization beginning from the early
1970s. Inspired by the success of Japan and the newly-industrialized economies (NIEs),
Malaysia devised fiscal strategies that induced the inflow of foreign capital and promoted
exports. There was close inter-twining between industrialization and export trade policies.
The export-promotion initiatives succeeded in boosting the share of manufactured exports
in total merchandize exports and the share of the manufacturing sector both in the national
income and employment.
Apart from commodity diversification, Malaysia also pursued market diversification of
its exports with the aim of diversifying away from traditional markets. The government
was actively involved in sending trade missions, holding trade expos and establishing trade
offices abroad. Malaysia’s major export partners had traditionally been Singapore, Japan,