In the past, majority of developing countries seek to implement programs geared towards import-substitution for development and the results encountered by economies such as Singapore, Brazil, Mexico, Hong Kong, Taiwan and South Korea for more than 30years has being remarkable, these countries made a crucial switch to export-led growth scheme from an import-substituting orientation (Todaro, 1997). A lot of these economies, nonetheless, sustained the continual use of export-led strategies to stimulate economic development (i.e. Watkins, 1963; Hirschman, 1958; Roemer, 1970; Baldwin, 1966). These economies did not have it all smooth has they encountered various kind of difficulties in relation to exporting i.e. the rate of request from end-point countries is slow moving, decreasing trade relations and unstable export income i.e. Corden and Neary, 1983; Roemer, 1979; Edwards, 1991; World Bank, 1993; Charos et al., 1996; Sachs and Warner, 1995).
Export-led growth has been tagged in economics with the impression has a major stimulant of growth. The export strategy is effective on production growth over various ways.
The influences of the export scheme or sector on areas that are not export related are not far-fetched provided there is a competent administration and enhanced production technique. Export growth is likely to enhance the opportunities of exporting organisations as relating to economics and also boost the allocation efficacy and dynamic competitiveness. The availability of inducements to enhance investment and also develop technology, these factors is channelled to favour differential productivity in the area of export (i.e. marginal factor productivities are expected to be increased in the exports area compared to other sectors of the economy).
Therefore, an increase of the export sector at the expense of other sectors of the economy will have a progressive net outcome on the summative output. The increment of the export sector could also influence an aggregate growth by lessening the foreign exchange restrain. The allowance of the expansion of transitional inputs, export increase would reduce an important bottleneck and expedites the export of inputs exemplifying fresh techniques. Through the foreign trade multiplier, export development could increase output. This statement is crafted from the Keynesian macro model which is based on short-run economic growth and necessarily long-run. Nevertheless, insufficient local demand in developing countries could limit the possibility of industrialization. These arguments have newly been augmented by the literature about 'endogenous' growth theory which stresses the importance of progressive returns to scale and self-motivated spill-over influence on the export sector development. The effect of export could practically enhance long-term development by permitting the economy to focus on areas of the economy with scale economies that came about from R&D, human capital build-up, or learning-by doing. From what has been gathered, an increment in the return of scale is linked with the adoption of first-hand technology complimented between the use of human and physical assets.
Regardless of the popularity of export-led growth theories, the practical or realistic evidence is rather diverse. Most recently time-series evidence as unsuccessfully failed to give an unchanging backing for the export-led growth theories/hypothesis.
On the other hand, an extensive literature which applied a number of cross section methodologies thoroughly backs the correlation between exports and growth i.e. the result from the cross section methods seem to have found a link between export and growth, while the time-series is less decisive (Ahmed and Kwan, 1991; Jung and Marshall, 1985; Greenaway and Sapsford, 1994a, 1994b; Love, 1994; Ghartey, 1993; Edwards, 1993). Due to this, the cogency of theories of the export-led growth is questionable. Papers from writers such as Kwan and Cotsomits (1990), Chow (1987), Durrant (1987), Ahmad and kwan (1991), Bahamani-Oskooee et al. (1991), Kugler (1991), Afxentiou and Serletis (1991a), Dodaro (1993), Oxley (1993),), Love (1994), Jung and Marshall (1985), Greenaway and Sapsford (1994a has come out to criticize and state their disbelieve of the validity of the export-led hypothesis/theories. Likewise, some other notable writers such as Bahmani-Oskooee and Alse (1993), Ghatak et al. (1995), Dutt and Gosh (1994), Afxentiou and Serletis (1991b), Khan and Saqib (1993), Kugler and Dridi (1993), Sengupta and Espana (1994), Ghartey (1993), proposed a moderately strong evidence which supports the export-led growth theories. Majority of the findings from the time-series studies was deduced from its use of a singular method which is the Granger or Sims, to study the fundamental link between actual export growth and actual economic growth. Just a number of them (Giles et al., 1993; Bahmani-Oskooee et al., 1991; Ghartey, 1993; Love, 1994; Oxley, 1993) towed the path of C Haiso (1979, 1981) which employed both the use of Granger test and the FPE (Akaike's Final Production Error) principle to determine the optimal lag interval in Granger causality test. The amalgamation of these two principles by Hsiao's has created a platform to determine the optimal lag interval for individual variables employed using the Granger test on the criterion of minimum FPE.
Also, with a number of exclusions such as Bahmani-Oskooee and Alse (1993), Kugler (1991), Afxentiou and Serletis (1991b), Oxley (1993), Dutt and Ghosh (1994), Kugler and Dridi (1993), Sengupta and Espana (1994) and Giles et al.1993, all did not use their study to know if there is any co-integration between export and import. Therefore, past findings have not been extensive on whether there is any proper link between the long-run growth of export and outcome on economies GDP or its GNP. A compulsory prerequisite to causality testing is to determine the co-integration effects of the variables which are to be acknowledged since the customary test for causality are not binding if there is co-integration (Bahmani-Oskooee and Alse, 1993; Granger, 1988). It has been noted that studies have previously been carried out without necessarily dealing with the issue of non-stationary in the data of export and income. A vital issue that occurs from the sector of export through the national accounting identity have been identified as factors that influence output. To correct this default, it is important to distinct the effect of economic exports on production (Greenaway and Sapsford, 1994a). The shocking thing is that these discrepancies have been completely set aside by existing hypothesis. Not long ago, this important factor has been addressed by Afxentiou and Serletis (1991b), Sheehey (1990, 1992), Hwa (1988), Love (1994), Greenaway and sapsford (1994a), these lot have identified the issue of autocorrelation where it occurs in models that use any of the main components of output e.g. exports or government expenses or income as the basis of output growth. A number of methods have been suggested to address these problems. The duo of Heller and Porter (1978) said this issue can be fixed by stating the revenue variable net of variables supposed to be the basis of development. Then Sheehey (1990, 1992) analysed the suggestion by Heller and Porter using a Feder/Ram type bivariate model and discovered that export development and government expense boom are highly recognised to be important in relation to revenue increase but the coefficient on the descriptive variable lost statistical importance when the dependent variable was accessed in net terms. Likewise, employing the works of Falvey/Gemmell and Heller and Porter, Greenaway and Sapsford (1994a) there is a minute backing for export-led growth propositions for 13 developing nations. One other setback from the time-series hypothesis, which excludes Giles et al. (1993) and Ukpolo (1994), mainly sheds light on aggregate real exports only. Giles et al. (1993), emphasised that it may cover the significant principle differentiating among a number of export classes. The fact that export-led growth is linked to a particular amount of export class goods, it still may not necessarily be exhibited at the point of aggregate level, and bogus deductions could be drafted when disaggregated data are not studied. Concerning the economy of New Zealand, Giles et al. (1993) deliver varied proof to back the support of export-led growth theory. As they happen to be non-supportive of theory at the point or aggregate level, a number of backing were recorded at certain export cases, particularly if concentration is more on export of entities such as minerals, chemicals and plastic materials, the exportation of metal and metal products and in smaller portions or quantity the export of live animals and meat. Ukpolo (1994), studies interprets that economic development is related to export composition via the application of time-series data of a few low-income African nations. His studies although is in line with the school of thought that there is a significant link between the development of non-fuel main exports and growth.
Even so, the outcome caused some uncertainty on the importance and implications of the manufacturing export area in relation to development in nations with low level revenue. The outcome reflects that the presence of a high point of development is significant to the achievement of economic growth via the implementation of manufactured-goods Export-led Growth policies. It is established that LDCs usually encounter problems achieving any impactful economic development via the exploitation of manufactured-goods for export.
The hypothesis on Export-led Growth was initially focused on its relationship between the effect export and income (Emery, 1967; Kravis, 1970). Over time it metamorphosed to acknowledging the necessary varriables to be interconnected (Michael, 1977; Heller and Porter, 1978). In the event of these, Tyler (1981) and Feder (1982) later projected a cumulative production objective which comprises export as a defining variable as sample of emerging economies. After the invention of the time series data bases and also the emergence of fresh time series models which includes the co-integration technique, there have been studies from Jung and Marshall (1985) and Chow (1987).
Undeniably, there has been a wide range of studies in the past few years on a number of nations about the effect of export-led growth in correlation to using different time-series models. A voluminous amount of theory has been recorded as regards export-led growth. And after a thorough examination of this literature, Giles and Williams (2000a) concluded that after evaluating almost 150 export-led growth cases. It was then established that study from previous papers about export-led growth were more constructive towards the theories; on the other hand it is less favourable with the time series studies. Giles and Williams (2000b) also had an insightful look at the Granger non-causality test results for investigating the connection between export and the general economic development to the model employed to tackle recurring problems.
Due to the large number of papers and propositions on export-led growth, it will become daunting to analyse all of them. However, we will randomly select a number of literatures that have attempted to review certain developing countries. Particularly, since Giles and Williams (2000a, b) had a comprehensive analysis of the literature.
Economic profile of Malaysia
Malaysia gained independence in the year 1957, and ever since the nation has engaged more in international trade with the openness of its economy, this is mainly controlled by the market forces. Before independence, the nation was relatively sustained by its tin and rubber industrial sector. Around the period of 1964-1984, there was an increasing evidence of GDP growth which was duly because of the level of change in policies and reforms. In 1985-1986 the country was hit by recession because of the slope in commodity price. Thereafter, there has been a significant expansion and development in the export of manufactured commodities. By the year 1991, the GDP has increase by another 8.6percent (World bank, 1993).
The country has a population of about 27million people; the economy in the South of Asia is among the most developed. Over 13 million people in Malaysia fall in the upper to middle class income category of buyers. The GDP of the average Malaysian is about US$6,000. The nation is generally known to be strong in the sectors of product manufacturing, agriculture and service areas.
In 2009, the effect of the global recession brought the GDP of the economy to a low point of 3.6percent. However, there is an expected growth of 2.5percent in 2010.
Amongst the manufacturers of disk hard drives, rubber, timber and palm oil, Malaysia is noted as one of big player in the production of the commodities. The country possesses a nationally owned vehicle manufacture in the name Proton. The tourism sector is also at point where growth is inevitable.
Notwithstanding the global downturn, the Malaysian economy has been able to survive the consequences and also depicts signs of serious prospective probability that it's liable for growth for customer high value goods. In the year 2009, the United States recorded a new record increase on food and agricultural exports to a total of US$696.8million, which is 17%. The statistic is strange, because most of the major exports markets out of the United States appear to have a general decrease in their overall agricultural export and the minority drop in buyer export or a minute surge. Concerning Malaysia, exportation from the United States relating to consumer food products decreased to an amount totalling US$243.9 million which is 20.5percent.
Regardless of the high prospect, there are still some impending issues as regards exporters from the United States that deals in consumer food commodities. The customers are requesting for higher range in food product and also an increase in quality. Generally, they are usually alert to the commodities of this nature. In the most realistic cases, the retailers most times target food commodities that are reasonably priced for the end buyers. The countries that are near Malaysia are benefit from a quicker supply and also a reduced freight expense to Malaysia compared to U.S exports. The high-end retailers patronize importers and wholesalers that usually get to buy these products at the smallest amount from the exporting country i.e. mostly in cargos.
Direct Investment and Local Growth
The Malaysian economy development has solely been dependent on global trade partnership and direct investment for foreigners compared to other nations from the region. By doing so the country is bent on expanding the local sector because of the latest decrease in direct foreign investment. The country is looking to diversify especially in tourism, agriculture and small domestic establishments to allow for a sustainable economy and increase growth. The plan to expand the tourism sector could trigger an investment from foreigners amounting to about US$10billion in revenue. There is also a chance for the growth of the academic institutions to attract people to Malaysia for studies, target market such as Africa, the Middle East, China and Indonesia. Also is the development in the medical sector i.e. transforming the medical sector world class by vastly improving the infrastructure and more attractive for the global market. Establishment that emerge for United State and Europe always make efforts to exploit the countries tax breaks and then tag the countries as an appealing region. There some certain inducement, level investment policies then renders most establishments the chance to have good return on investment. It also enables for a stable economy, politically and economically.
Emergence of New Market Entry; China
The membership of Chine in the World Trade Organisation has created a bigger platform for a stronger trade relationship between Malaysia and China. Amongst other members of the association of the southern Asia Nations, Malaysia is china's biggest partner in cross-border trade. China is started utilizing the ports of Malaysia to distribute products. China is also determined to sustain the continual trade partnership with Malaysia. A report on China by the World Bank disclosed the wide range of opportunities in the Chinese market. It reports that half of the total export in the East Asian region is to China in the year 2002. This surpasses the rate of global exports by double.
Privatization
Some 30 decades ago a considerable huge number of Malaysian (which included government heads) started to be dissatisfied with the performance of government-owned and government-run establishments for the attainment of development and economic growth. Most of this state-run establishment made recurring deficit compare to the records of success enjoyed by their privately owned counter parts. The administration of the state over these establishments was so colossal that there was no proper record of the number there were.
Firstly, the government corporatizes most of the state owned entities. These reforms started off in the mid-1980s, where enterprises such as the Malaysian International Shipping (MISC) and Malaysian Airlines (MAS) were listed. The overall process did not become an extensive one until the 1990s.
Secondly, massive privatization of newly developed facilities (facilities include the North-South and mobile telephone scheme) adopting a method where contracts would be given on the basis of bids tendered (bid could be invited or involuntary bid). These processes usually tend to give the contract to the first tenderer. The way and manner these projects were awarded has been debatable from inception of the process. Though the cultural arrangement of the winners of the project is considerable sensible, but the procedure in deciding who won was questionable. Usually in these bids only a few number of companies are invited, and the makeup of the contract is termed to be way too frivolous.
Lastly the government embarked on a complete privatization of all major state-owned establishments. The process to achieving this was cumbersome and before the end of 1993 firms like HICOM was sold. The style of transfer from government control to the private sector in Malaysia is unique compared to what is obtainable in the Great Britain when it was under Margret Thatcher. The drives for a private take over in Malaysia is motivated by believe that it will bring about some form of economic development.
ANALYSIS;
Evaluation of the Promotion Programmes By Malaysia, And the Strength and Weaknesses
The urge to engage in globalization through the engagement in international trade using export has a platform for economic growth and development. The Malaysian government have over time created numerous agencies to manage export promotion programmes to encourage exportation and create an enabling environment for local and foreign investors. For the purpose of this paper we will only analyse three of such agencies and their export promotion. The agencies include MATRADE, MIDA and RSPO.
MATRADE
This agency came about in the year 1993 and is under the control of the MITI. MATRADE's is responsible for the overall Malaysian export by promoting and developing its economy in the eye of foreign investors. The agency is legally bound to:
Help elevate, encourage and develop the nation's global trade. The exportation of manufactured and semi-manufactured goods and services are usually stressed.
To create and execute export promotion programmes and business strategies to help expand the country's exports.
It engages in smoothening and rendering assistance on services concerning trade.
To embark on trade intelligence and market study to give a good understandable data bank available for the development and elevation of the country's export/trade.
It helps to safeguard the welfare of Malaysia's global trade internationally.
They undertake training classes or seminars to help develop the marketing expertise of exporters from the country
Even though the mandate of MATRADE is to help promote the exportation of services and manufactured product in Malaysia. It also liaises with other agents such as the Agro-based establishments, the Ministry of Agriculture, the Ministry of Plantation Industries and commodities in relation to matters of trade promotions, especially in the area of international trade programmes. 20years ago, the agency's collaboration with the banana growers in the country successfully helped them to gain access into the Japanese market.
The export promotions practised by MATRADE include:
Endorsement of Trade events
Industrial Excellence Award
Trade matching
International trade event
Malaysian Kitchen program
Other includes:
Export assistance
Export training programme
Trade financing
New exporters development
TRADE MATCHING
This form of promotion is performed by providing local Malaysian firms or exporter with information of what the foreign buyers, foreign missions in the country, business observers etc. require of the market. This serves as an impetus to the exporters.
ENDORSEMENT OF TRADE EVENTS
They deal with approval and listing of international trade and conference in the country. Such programmes have been known be some sort of platform to project trade in Malaysia. The nation is reckoned to be capable of organising enough of internal exhibitions and conferences in Malaysia because of its existing infrastructure. Due to the popularity and importance of this program it has grown bigger and more attractive. To carry out efficient promotion of this programmes the state mandated MATRADE to register such events.
Endorsement
The approval by MATRADE of any exhibition or conference both local and internationally, gives the event integrity and assist the co-ordinator in the promotion effectively. The advantages of MATRADE listing and approval include;
The event enters the MATRADE brochures and directory of trade.
Entry into MATRADE's portal.
Using the agent's foreign and regional bases for promotion.
Showcase event at MATRADE's promotional programmes.
Prove of MATRADE'S approval with its logo on promotional and print supplies.
Ensures a speedy tax incentive for MATRADE approved trade exhibition and conference organisers.
INTERNATIONAL TRADE EVENTS
Trade Fairs
MALTRADE is responsible for the participation of Malaysian exporters and businesses in foreign trade fairs. These fairs are good platform for firms willing to project their goods and services to a probable international market. MATRADE is involved in rendering assistance in areas such as stand erection and reservation. Also involved with publicity before the event and arranging meetings with foreign investors.
General Marketing Missions
They are in-charge of spotting a trade prospect and how it could be tapped into. Besides identifying how export product can be sold and distributed, the program also link prospects to existing business network. The main priority is to concentrate on business gathering between the country's representative and the local business populace, telling them about the trade prospects and visit to similar trade association and firms.
Specialised Marketing Missions
The program is carried out in the international terrain to discover and identify business prospects for particular goods and services. Besides identifying prospective markets, they also tend to create a platform for exporters to relate with the global business community.
Promotion Booth
This form of promotion is practised in trade fairs where MATRADE erect booths for participants to inquire about Malaysian goods and services, Also in display is the product brochure of companies in Malaysia. This form of program serves as a substitute and a cheap way to publicise the export goods and services from Malaysia.
Trade Promotion Visit
The Trade Promotion visit motivates the local importers to engage in MATRADE's Buying mission. This is achieved when business commissioners stopover at different areas to assist them in having an explicit knowledge of the prospective markets. Its efforts are also targeted at encouraging business groups.
Joint Promotion Activities
The promotion activity was established to relate with other regional business agents to help re-enforce the partnership with them. These regional partners include Asian Trade Promotion Forum (ATPF), ASEAN-Korea Centre (AKC), JETRO and ASEAN-Japan Centre (AJN). The alliance usually occurs in form of trade fairs, putting goods at permanent exhibition area at different locations and arenas for exporters.
MALAYSIAN KITCHEN PROGRAM
The purpose of this promotion program is to enlighten foreigners about the Malaysian food industry abroad, achieved with the help from experts in the food industry to increase the demand for Malaysian dish engaging a universal approach using diverse promotional programmes.
The goals of these program is mainly to project the Malaysian cuisine to world thereby increasing sale and the exportation of processed food, ingredients, agricultural good and expand the tourism industry in Malaysia. The benefits for restaurants engaging in the program include:
(a) Promotional Support
Strategies for promotion are usually channelled towards the exploitation of popular personalities or celebrities, recognised writers and novelist for assessment and also participation in the international restaurant rating agencies.
They participate in the programmes portal and collaterals to increase popularity for the restaurants.
Exposes them to culinary events that are globally recognised e.g. trade events, cooking shows and demonstrations
(b) Financial Facilities
The EXIM Bank (Export-Import Bank of Malaysia Berhad) gives out loans through the Kitchen Financing Facility (MKFF) to help Malaysians to open new restaurants abroad, to expand the already existing ones and for the growth of the nation's food franchise globally.
INDUSTRY EXCELLENCE AWARD
This is used to appreciate business performance. The main purpose of this excellence award is as follows:
To appreciate businesses with exceptional success
For quality attainment and cognizance
Data knowledge on successful performance policies
To motivate the manufacturing of outstanding goods and services
Examples of the awards include the Prime Minister's Industry Excellence Award, Product Excellent Award, Export excellence Award (Merchandise), Export excellence Award (service), Special Award for Product Excellence (innovative Product).
EXPORTERS TRAINING PROGRAMME
MATRADE arranges forum and workshops to assist upcoming exporters and brief the surviving ones on the new trend in the global trade; informing them of new innovations and prospects. The main things usually talked about are how to emerge brands, packaging of goods, and technology in business, keeping data and export policies.
SME's Export Initiatives
Besides the involvement in the growth of Malaysia product globally, the agent, MATRADE is also involved in the organisation of training for locally based exporter to help them improve on their ability to exploit the international market through export by engaging in thorough marketing.
Away from these training exercises the Agency also renders trade consults to help give advises. They print brochures and hand-outs to help provide enough information; such information is also accessible with the use of their website.
Enhancing Exporter's Knowledge
To improve the exporters understanding of the market entry, international trade demand and business practices. The agency put together special training lessons for targeted at exporters from Malaysia and up-coming exporters.
Even though MATRADE arranges its own programme it also liaises with other partners or agencies such as the private organised sector, government parastatals, the banking sector and the foreign consulates to arrange similar trade seminars and conferences.
EXPORT ASSISTANCE
A form of leverage is given to potential businesses and existing ones to help promote the goods and services out of Malaysia. This encouragement is made possible with the provision of help in areas such tax, finance and insurance and institutional support.
Financial Assistance Scheme
The main purpose of the scheme is to make accessible certain grants available to SMEs in other for them to grow their international trade. The state via the Financial Assistance Scheme gives financial concession to firms or establishments to slightly avoid the high financial implication in export promotion. The agency can give as much as 50% the cost a firm is liable to spend for its export promotion activities.
Tax Incentives
There is a massive reduction in form of tax for firms eligible; the inducements include almost double reduction for Export Promotion, Tax immunity, Investment tax grant, Capital Allowance and Special Incentives given under the provision of the law. There is also a reduction in income tax to help develop the promotion of Malaysian export goods abroad.
Certificate of Free Sales (CFS)
The certificate is used to identify Malaysian exporter which are authorised to carry out the exportation of locally produced export goods for exports. The certificate is mostly required by certain countries before entry into their market and MATRADE is solely responsible for the issuance.
TEAM FINANCING
The global market gives the exporters from Malaysian a lot of market opportunities to explore abroad. Therefore, involvement in international trade can be tasking and complicated which may result to exposure to certain threat. It is vital for exporters to be updated about such threats. The knowledge of these threats is a major factor to effective exporting businesses. Every exporter is mandated to match their businesses with the appropriate business financial strategy for exporting. MATRADE is responsible for providing the knowledge of these business strategies. The following product/business/financial terms are rendered by foreign and locally based Malaysian banks:
Open account
In the idea form an importer collects delivery of product before payment is issued to the exporters. The term of payment is usually stressed over 30-90 days. Therefore, the exporter is liable to the threat of not receiving payment, prolonged payment and indebtedness from the client.
Term collection
Over the period of transaction from the exporter to the importer, the exporter is still the controller of the goods in-transit until the importer issues a legal paper stating it is indebted to the exporter.
Sight collection
Before payment is received by the exporter from the buyer, they still have authority over the exported goods until a bank issues to the importer a bill of lading. Thereby, allowing the possession of the products.
NEW EXPORTERS DEVELOPMENT
This program is divided into two categories; the Bumiputera Exporters Development Programme (BEDP) and The Women Exporters Development Programme (WEDP).
