WPS6427


Policy Research Working Paper                       6427




        How to Avoid Middle Income Traps?
                       Evidence from Malaysia

                                Aaron Flaaen
                                 Ejaz Ghani
                               Saurabh Mishra




The World Bank
Poverty Reduction and Economic Management Network
Economic Policy and Debt Unit
April 2013
Policy Research Working Paper 6427


  Abstract
  Malaysia’s structural transformation from low to middle                           goods and services. This paper examines productivity
  income is a success story, making it one of the most                              growth for Malaysia at the sectoral level, and constructs
  prominent manufacturing exporters’ in the world.                                  several measures of the sophistication of goods and
  However, like many other middle income economies,                                 services trade, and puts these comparisons in a global
  it is squeezed by the competition from low-wage                                   context. The results indicate that Malaysia has further
  economies on the one hand, and more innovative                                    opportunities for growth in the services sector in
  advanced economies on the other. What can Malaysia do?                            particular. Modernizing the services sector may provide a
  Does Malaysia need a new growth strategy? This paper                              way out of the middle income trap, and serve as a source
  emphasizes the need for broad structural transformation;                          of growth for Malaysia into the future.
  that is, moving to higher productivity production in both




  This paper is a product of the Economic Policy and Debt Unit, Poverty Reduction and Economic Management Network. It
  is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development
  policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.
  org. The authors may be contacted at EGhani@worldbank.org; AFlaaen@umich.edu, and SMishra2@imf.org.




         The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development
         issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the
         names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those
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                                                       Produced by the Research Support Team
           HOW TO AVOID MIDDLE INCOME TRAPS?
                   Evidence from Malaysia
                                                                                    *
                           Aaron Flaaen, Ejaz Ghani, and Saurabh Mishra




Keywords: Globalization, Structural Transformation, Service Productivity, Growth Accelerator
JEL Classification: F14, O14




* We thank Shekhar Aiyar, Rahul Anand, Sadiq Ahmed, Barry Bosworth, , Otaviano Canuto, Annette Dixon,
Markus Eberhardt, Bert Hofman, Homi Kharas, Justin Lin, Vikram Nehru, Donghyun Park, Philip Schellekens,
Nikola Spatafora, Karlis Smits and Vivek Suri for valuable comments on earlier draft. The findings of this paper
were presented at a workshop organized by Economic Planning Unit in Kuala Lumpur, Malaysia and we are grateful
to the participants for their comments. Any errors are our responsibility. The findings, interpretations, and
conclusions expressed herein are those of the authors and do not necessarily reflect the views of The World Bank,
International Monetary Fund or the governments they represent. eghani@worldbank.org, aflaaen@umich.edu,
smishra2@imf.org.
                                          I.       INTRODUCTION
        Over the past several decades, Malaysia has experienced remarkable rates of economic
growth. Indeed, the real growth in GDP per capita in the period since 1980 has averaged over 3.6
percent, a rate that results in a doubling of income levels in just a 20-year period. By way of
comparison, the industrial countries of Britain and the United States realized an average growth
in GDP per capita of between 1.3 and 1.8 percent during their own respective periods of
industrialization. Yet, relative to the more advanced Newly-Industrializing Economies (NIE) of
Singapore; Taiwan, China; and the Republic of Korea, the record of Malaysian growth appears
more sobering. 1 These countries recorded real per-capita growth rates of 4.4, 5.7 and 7.5 percent,
respectively, during the same period. As shown in Figure 1, Malaysia was at a similar level of
development as Korea and Taiwan, China in 1980, and yet while these countries have made the
transition from middle-income to high-income status during the subsequent decades, Malaysia
has found such an evolution more difficult. In addition, Malaysia’s absolute productivity gap
with high-income (OECD) countries has also widened; in the case of the industry sector, the
productivity differential nearly doubled from $21,786 in 1980-1985 to $38,946 in 2000-2004
(Felipe et al, 2007).

        After markedly reduced rates of productivity and growth after the Asian financial crisis
of 1997-98, there is a growing concern that emerging markets like Malaysia might fall into a
“middle income trap�, unable to subsequently achieve high levels of economic growth and
further economic transformation. 2 The form and pace of structural and spatial transformation is a
crucial driver shaping whether countries come out of the middle income trap. The objective of
this paper is to examine prior patterns of growth in Malaysia, document the cross-country
evidence of how Malaysia compares with peer countries from a variety of perspectives, and
highlight various policies to promote more rapid growth in the future.

        To avoid the Middle Income Trap, it is critical for a country to sustain high rates of
economic growth. This task is complicated by the fact that the transformation of Asian
economies from rural to urban-based is expected to take place within 50 years, while this
transformation took over 100 years in advanced economies (see Aizenman et al. 2012). The
economic transitions are occurring much more rapidly than those in the past (see Felipe, 2012).3
Recent evidence also finds that Malaysia, the Philippines and China will face a larger risk of

1
  Although Asia held technological superiority a thousand years ago, greater cultural rigidity diminished the ability
to adapt to a new technological paradigm, delaying Asia’s industrialization in the first half of the 20th century (see
Quamrul and Galor, 2007). Cultural diffusions were a significant determinant of comparative economic performance
during the Malthusian epoch and in the transition from agriculture to industry.
2
  Out of 101 middle-income economies in 1960, only 13 became high income by 2008 (see World Bank 2012).
There is a growing concern that without the domestic development of genuinely novel product innovation that
pushes the global technology frontier, China and other emerging markets like Malaysia might get caught in a
‘middle income trap’ (The Economist 2011).
3
  Most of the world’s poor live in middle-income countries; the dispersion of the world’s income per capita has
significantly increased with many countries not closing their income gap with the US. To avoid lower middle
income trap a country has to grow in per capita terms at 4.7 percent per annum; to avoid upper middle-income a
country has to attain an average per capita growth rate of at least 3.5 percent per annum to avoid falling into the
upper middle income trap (see Felipe, 2012 for details).

                                                          2
growth slowdown stemming from institutions; while Vietnam, India, and Indonesia are most at
risk of a slowdown arising from a lack of transport and communications infrastructure (see Aiyer
et al. 2013). Previous studies of growth slowdowns in fast-growing middle-income countries
identify two modes of slowdowns: one in the $10,000-$11,000 range and another at $15,000 -
$16,000 (see Eichengreen et al. 2012 and 2013). A growth slowdown is less likely to occur in
countries with more diversified economic production accompanied by a skilled population set
and high-technology production to avoid the middle-income trap (see Aiyer et al. 2013 and
Eichengreen et al. 2013). 4

         In additional to diversifying and moving up the value chain in traditional manufacturing,
we highlight a new channel for promoting rapid economic growth in emerging markets. The
world is experiencing a third industrial revolution with services trade being at the forefront of
this revolution. Services are characterized by growing tradability, increasing technological
sophistication, and lower transport costs. Modern services can now be unbundled and splintered
in a value chain just like goods and can be electronically transported internationally through
satellite and telecom networks. 5 The number of services that can be transported digitally is
constantly expanding – processing insurance claims; call centers; desktop publishing; compiling
audits; completing tax returns; and transcribing medical records. In a not-too-distant future,
patients at home will be able to speak with their doctors and students will access high-quality
education via virtual classrooms. Labour matching is increasingly done online and platforms like
Odesk can connect employers and employees across national boundaries (see Baldwin 2012:
Blinder 2006; Ghani. et. al. 2012, 2010; Mishra etl.al. 2010; see Spence, 2012). 6

        There is a close association between structural transformation and spatial transformation.
Malaysia’s per capita income is $13,705 (real 2005 international $ PPP terms in 2010) whereas
its urbanization rate is 72 percent (see Figure 2). As countries develop, the importance of the
manufacturing sector declines and the importance of the service sector increases (see Figure 3)
Malaysia has not fared well on this front. Our analysis highlights that the Middle Income Trap is
often characterized by a poor integration of both structural and spatial transformation.
Developing countries often develop an urbanization strategy to facilitate a goods export-led
growth that has helped many emerging markets to make the transition from low incomes to
become a middle income country. The pace and quality of urbanization becomes even more
important as countries try to make the transition from middle income to an advanced economy.
Urbanization strategy to develop services may differ in some respects (see Desmet et al, 2012).
The redistribution of knowledge and technologies in a spatially balanced manner are crucial
ingredients to facilitate broad economic transformation. There are many drivers that will shape
how countries come out of middle income traps. The form and pace of structural and spatial
transformation will vary from country to country. Some countries, like China, may need to give
more focus to services growth. India may need to revive its industrial base. How these structural


4
  Population has a relatively high level of secondary and tertiary education
5
  China’s domestic patent filings increased at an annual rate of 35 percent from 1999 to 2006 with changing nature
of ICT at the heart of this ‘patent explosion’ (see Eberhardt et al. 2012).
6
  The increasing productivity, tradability and unbundling of service activities have given rise to a new engine of
growth because of the 3T’s technology, tradability and transportability of service tasks. Exponential growth in
technology coupled with reduction in price (Moore’s Law) and rise in fibre optic transmission rates (Gilder’s Law)
are triggering creative destruction and creative complex activities and new jobs.

                                                        3
transformations will evolve will depend on how countries manage urbanization, education, and
infrastructure linkages.
        In the sections that follow, we argue that the key to sustained growth is the continued
“structural transformation� of the Malaysian economy from traditional sectors to modern
tradable sectors. 7 The transformation of the Malaysian economy from traditional to modern
goods trade has helped Malaysia to rise from a low-income to middle-income country. The
modern service sector has stagnated in Malaysia. A similar structural transformation to
modernize service trade could pave the way for Malaysia to become a developed country. While
other developing countries are reaping the benefits of globalization of services, Malaysia has yet
to take advantage of this phenomenon. The services sector contributes over 42 percent of the
GDP, but most of these activities are in traditional services. Globally, modern service trade has
witnessed higher growth, but Malaysian modern service exports have been stagnant. More
positively, there remains tremendous scope to invest and take advantage of the globalization of
services as an enabling mechanism to become a high-income economy.

        The Great Recession present several challenges, and also (as we will argue below)
opportunities for Malaysia to stimulate growth in the short to medium term. Rich country
markets may not provide the equivalent magnitude of demand for exports from low and middle-
income countries as in the prior decade, and thus export-led growth could become more
challenging. However, , Malaysia’s gap in labor productivity should serve as a source for catch-
up. The global downturn will not diminish the benefits of technological spillovers as the stock of
knowledge in countries such as the U.S. and Japan has not been diminished by the global crisis,
and such knowledge can be transmitted through the tradable sector. We emphasize the need for
broad structural transformation i.e. moving to higher productivity production in both goods and
services. As emphasized by Rodrik (2009), the structural transformation from low productivity
(“traditional�) to high-productivity (“modern�) activities sheds light on the significant gaps
between the social marginal productivities of the two types of activities. Malaysia has performed
exceptionally well in production of goods and high productivity goods in particular. The next
challenge for Malaysia lies in taking advantage of globalization of service to escape a potential
middle income trap.

        The remainder of this paper is structured as follows: Section II examines what is a
middle-income trap and the role played by manufacturing and services to come out of such traps.
Section III discusses various definitions of modern vs. traditional areas of production and trade.
Section IV documents the past models of growth that have led Malaysia to middle-income status.
We provide evidence on the sector-specific growth in output and productivity, and calculate
several measures of the modernization and sophistication of exports for both goods and services.
Section V shifts attention to the opportunities and challenges for future growth in Malaysia
brought on by likely changes in globalization and de-globalization. We examine two channels of
globalization: trade and capital flows. Section VI concludes.




7
 We provide a set of criteria to differentiate “modern� vs. “traditional� sectors of production (separately for goods
and services) in our subsequent discussion.

                                                         4
                       II.     WHAT IS A MIDDLE INCOME TRAP?
        Economic history has shown that few countries that have achieved middle-income status
continue to converge to the level of high-income countries. As the policy, institutional, and
structural environment evolves, prior strategies and competencies no longer remain effective at
generating an equivalent rate of growth. Indeed, strategies based on factor accumulation are
likely to deteriorate as the marginal productivity of capital declines, and rising wages will reduce
the international competitiveness of many labor-intensive industries. Thus, the new constraints
on the economy become more complex as domestic industries rely less on investment and more
on innovation. As this process develops, experience has shown that middle-income countries can
become trapped – no longer able to effectively compete with low-wage competitors in poor
countries and still lacking the innovative capabilities to rival high-income economies. As argued
in a recent 2007 report by the World Bank, the ‘middle income trap’ has become a palpable
challenge for several countries in East Asia in particular. Box 1 provides a literature review on
forces shaping the middle income trap.

         Complicating this process in recent years is the China phenomenon, which has decreased
the breathing room for both developing and middle-income countries looking to low-cost, labor-
intensive manufacturing as an engine of growth. In addition, recent research shows that this
“trap� may become more difficult as globalization progresses. Eeckhout and Jovanovic (2007)
provide evidence that the relative challenges for middle-income countries under increased labor
mobility are greater than for either low-income or high-income countries. As the authors
illustrate, middle-income countries experience the smallest change in factor-price ratios after
labor-market opening, and thus greater occupational choice has the least value-added in an
integrated economy.

        Although the challenges highlighted by the ‘middle income trap’ may emphasize the need
to modify existing growth strategies, it is important to note that the basic policy objective will
remain unchanged: strong productivity growth of the overall economy. Productivity (understood
as either traditional labor productivity or the residual total factor productivity concept) provides a
useful indicator of economic efficiency and is universally recognized as the fundamental
determinant of improvements in real wages and rising standards of living over time. As a result,
much of the following analysis will focus on this basic measure of economic performance.




                                                  5
                            BOX 1: WHAT’S THE MIDDLE-INCOME TRAP?
The “middle-income country trap� is a development stage that characterizes countries that are squeezed between
being low-wage producers and highly-skilled, fast-moving innovators. Countries caught in this trap tend to grow
slower and often fall behind. Cost advantages in labour-intensive sectors, such as the manufactured exports which
once drove growth, start to decline in comparison with lower-wage poor country producers (Gill I and Kharas H,
2007). At the same time, they do not have the institutions, capital markets, track record, or critical mass of
highly-skilled people to grow through major innovations like rich countries. Caught between these two groups,
many are without a viable high-growth strategy. In addition, they are faced with new challenges including
distribution and social cohesion issues. Therefore, they are hard-pressed to develop new growth drivers (Nungsari
and Zeufack, 2009).

Productivity slowdown has been a sound characterization of middle income traps. Over time in a country’s
development process, there emerges diminishing marginal returns to cheap labor and technology imitation; this
could be offset if government act early to move from an imitation based economy to innovation based production
cycle (see Agénor, P-R and O Canuto 2012). The East Asian experience has illustrated that such policies are
central to fostering technological learning, attracting talented individuals into research and development
activities, and encouraging the build-up of national and international knowledge networks. Recently, the broader
debate over China's innovative prowess and potential development path has intensified. Some observers regard
Chinese firms’ ability to stay close to the world technology frontier and to improve upon and adapt existing
innovation as key to the country’s continued growth (Breznitz and Murphree 2011) where the globalization of
services is increasingly an important components of China’s growth (see Roach, Stephen 2013).Only one (South
Korea) of the seven countries which were middle-income by 1975 managed to reach high-income status by 2005.
Brazil and South Africa, which had double the per-capita income of South Korea in 1975, have remained at the
same level since then. It faced periods of negative growth, which cancelled all earlier progress.

Evidence of the middle-income trap can also be found in the dynamics of occupations and wages across
countries. The integration of the world’s labor markets creates big gains for rich and poor countries alike. For
example, blueprints of products flow from California to China, while manufacturing goods flow in the opposite
direction (see Kharas et at, 2010). The middle-income countries benefit less from globalization (Eeckhout and
Jovanovic, 2007). They are not technologically-savvy enough to compete with rich countries and are not cheap
enough to compete with China, Vietnam and other dynamic low-income countries. Thanks to communications
and transportation technologies, managers, engineers and designers — larger in number in rich countries — have
access to a pool of cheap labor in poor countries. This makes them more productive as they can produce more
with the same resources. The higher wages that accrue to high-skilled individuals represent the gains to rich
countries of an integrated global labor market.

Poor countries also gain. They produce better and more, thanks to the technology, design and managerial skills
brought in from rich countries. The wages of their unskilled rise and this represents their gains from
globalization. However, middle-income countries (lower middle-income to upper middle-income) gain almost
nothing from globalization as they are likely to experience “the smallest change in factor-price ratio� or no
significanthange in the ratio of skilled to unskilled wages (Udomsaph and Zeufack, 2009). Escaping the middle-
income country trap is an uphill battle. The move from being a middle-income country (MIC) to being a high-
income country (HIC) requires a break from the past in some significant structural shift. Apart from policies that
no longer work to elevate them to a high-income economy, many “trapped MICs� tend to make two common
mistakes: either they cling on too long to past successful policies or they exit prematurely from the industries that
could have served as the basis for their specialization process (The Growth Report, 2008). Timing is key. Most
MICs fail to anticipate the transition and the new demands that come with it. For example, most MICs hold on to
a labour-intensive strategy for too long. They artificially maintain non competitive firms through a battery of
subsidies, continuing to pile up fi scal incentives with no consideration of the take-up rate or efficiency, and
continue to make FDI volumes the key performance indicator for competitiveness (Nungsari and Zeufack, 2009).
The second common mistake is a premature shift away from assembly manufacturing before ensuring an
adequate supply of high-quality and competitive human capital to support the transition to higher value-added
sectors.

Source: Nungsari and Zeufack (2009) and Kharas et. al. (2010).

                                                             6
                                                Sources of Growth

        The notion of structural transformation necessarily involves the evolution of the output
allocation of the economy among different sectors and activities. Most often emphasized in this
evolution is the transition from agricultural to industrial production. Such a belief in industry,
and specifically manufacturing, being the primary “engine of growth� dates back to the work of
Kaldor (1966 and 1967). Through the presentation of a series of empirical regularities, Kaldor
put forth an argument for the supremacy of the industrial sector for the promotion of broad
economic growth. For example, Kaldor’s “second law� (also known as Verdoorn’s law) states
that there exists a positive relationship between growth in manufacturing production and growth
in manufacturing productivity, with an implication for increasing returns in the manufacturing
sector. In this interpretation, a sector subject to scale economies has a relatively lower
employment elasticity with respect to output (i.e. productivity grows more quickly for a given
level of output growth).

        In seeming contrast to the empirical arguments made in support of manufacturing is the
fact that most countries experience a rising share of services in total output as per capita incomes
increase. The causes of this shift and the subsequent implications for future growth have been
somewhat controversial. One potential reason for the positive association would be that services
have a higher income elasticity than goods, and therefore rising income will result in a larger
share of services in total consumption. 8 A second explanation with future growth consequences
is best characterized by Baumol (1967), who argues that the rising share of services in total
output reflects a relatively slower rate of productivity in the sector. Baumol emphasized that the
classification of production into goods and services is a result of inherent differences in the
technological structure of the activities. Because labor is a more essential element of production
in services than in goods, there will be less room for technological substitution for the labor input
in production. Slower productivity growth in services combined with wage increases that must
match those in the goods sector results in nominal costs of services rising at a faster rate. This
phenomenon of a rising share of services in output and a subsequent slowing of total economy
productivity, otherwise known as “Baumol’s disease�, has been a central concern among both
middle and high-income countries.

        The distinction between “modern� and “traditional� sectors of the economy has been
used in classical Arthur W. Lewis dual sector models to Nurkse’s Big Push. They hypothesized
that the interaction of modern tradable sectors can absorb excess supply of labor and yield higher
productivity and economic growth. 9 Indeed, structural transformation – diversifying from
traditional to modern sectors, reducing reliance on volatile resource based exports, and adding
8
  This finding has been shown to be highly dependent on what activities are classified as goods vs services. For
instance, the inclusion of food in the goods sector, which has a low income elasticity relative to other durable goods,
effectively lowers the overall income elasticity of the sector. In contrast, restaurant meals are classified as part of
the services sector, and typically display a strongly positive association between expenditures and income. Outside
of food, Bosworth and Triplett (2004) have found that aggregate income elasticities for goods and services are
broadly similar.
9
  The bulk of the differences between Asia’s recent growth, on the one hand, and Latin America’s and Africa’s, on
the other, can be explained by the variation in the contribution of structural change to overall labor productivity. (see
Rodrik and McMillan, 2012).


                                                           7
more value can increase both productivity and reduce unemployment by absorbing the excess
capacity of labor. Classical arguments continued to favor structural transformation as the
productivity difference between traditional agriculture (subsistence farming) and other activities
remains. Resource re-allocation, diversification, and shift towards more productive modern
tradable sectors are arguments focused on movements towards industrialization.

         As a result of these ideas, over the past several decades economists and policymakers
have focused their attention in large part on how to promote and sustain a large manufacturing
sector. Services were a neglected area of both policy and research until two separate but related
events took place in the mid-1990s. First, a global revolution in information and communication
technology (ICT) had profound impacts on the production and productivity of many services
activities. Bosworth and Triplett (2004), for example find that the services sector accounted for
over 70 percent of the post-1995 surge in labor productivity in the United States. They argue that
as a result of recent developments, the characterization of services as a drag on aggregate growth
is no longer valid.

        The second event was the emergence of strong economic growth in India, which was
seen largely to be driven by advanced services that relied in part on the recent innovations in
ICT. The increasing technology, transportability, and tradability (the so-called “3-T’s�) of
service activities has resulted in what some call the “globalization of the services sector�. The
specialization and scale-economies that are evident in one of Bangalore’s sprawling call centers
has become symbolic of the possible opportunities that the services sector provides as a source of
growth for both low and middle-income countries. In effect, information and communication
technology have allowed for virtual labor mobility that has put downward pressure on wages in
many service activities in high-income countries, while allowing for relatively innovative, high-
tech job creation in low and middle-income economies.

        Finally, other research has shown that the services sector is also a recent source of
dynamism among many Southeast Asian economies. Felipe et al (2007) and others have shown
that services have become an important source of labor productivity and TFP growth in many
parts of developing Asia. In fact, in their estimates of the impact of sector-specific growth on
overall economy growth, they find that services have a larger growth impact than manufacturing,
though slightly less than the industry sector as a whole.

        In our brief review of the trends and research on sectoral sources of growth, we conclude
that in the current global environment, industrial vs non-industrial is no longer the appropriate
distinction for designating high productivity – low productivity production. Rather, the key
designation is “modern� vs “traditional� activities. Importantly, in upgrading production into
higher productivity areas, countries should look to the services sector in addition to the more
traditional manufacturing sector. Therefore, rather than advocate for a particular sector as the
source of stronger growth in Malaysia, we emphasize the need for broad structural
transformation; that is, moving to higher productivity production in both goods and services.

       As emphasized by Rodrik (2009), the structural transformation is one from low
productivity (“traditional�) to high-productivity (“modern�) activities. There are significant gaps
between the social marginal productivities of the two types of activities, and the higher

                                                8
technological inputs of modern activities allows for productivity spillovers into the broader
economy. Rodrik also emphasizes that these modern activities are largely tradable products,
although the broader benefits of tradables is less dependent on whether trade actually takes
place. 10 As resources move from traditional activities towards modern, economy wide
productivity increases (see Rodrik 2009b, Stiglitz et al 2001). This can take place in agriculture,
manufacturing, or services.

       The distinction between traditional and modern activities will play a critical role in the
remainder of our analysis. Therefore, before we analyze the composition of Malaysian
production, we first offer our defining characteristics for “modern� and “traditional�
production/trade separately for goods and services.

          III.     DEFINING MODERN AND TRADITIONAL GOODS AND SERVICES
        There are two criteria that we can use to classify industrial activities (specifically,
manufacturing) as either modern or traditional. The OECD classifies manufacturing industries
according to several categories of technological intensity using the ratio of R&D expenditures to
total value-added. The division of industries into these categories was made after ranking the
multi-year average R&D ratios against an aggregate OECD average. 11 This distinction was used
most recently in the 2009 Industrial Development Report published by the United Nations
Industrial Development Organization (UNIDO). The UNIDO publishes a listing of three-digit
SITC codes that correspond to four technological classifications of trade: resource-based, low-
technology, medium-technology, and high-technology industries. Using the UN COMTRADE
database, we can access the commodity-level trade of individual countries and separate it by this
technological classification. Calculating the share of high-technology trade with respect to the
total gives us a measure of the technological intensity of trade for that country. In addition,
UNIDO also provides an equivalent classification based on ISIC codes for production-level
analysis; however, the available data on the production side is more limited.

       An alternative measure of the sophistication of goods exports is provided by Hausmann,
Hwang, and Rodrik (2007). They construct a weighted average of the per-capita GDPs of all
countries exporting a particular product (which they call PRODY), and correspondingly weight
each PRODY value of a country’s export basket by its share in total goods exports to arrive at a
measure of the productivity level of a country’s exports, which they refer to as EXPY. 12 The
authors argue that the PRODY measure captures a broader definition perspective of industrial

10
   Though Rodrik emphasizes the importance of industrial tradable goods, he acknowledges the increasing
importance of tradable services in “modern� activities.
11 For a more detailed description of the OECD methodology, see Annex A of OECD (2007).
12
   More formally, the PRODY and EXPY measures are calculated in the following way:
                       xij
                                                 xij
                                Yi and EXPYi = ∑ PRODY j where Yi is the per-capita GDP of country i and
                         Xi
PRODY j = ∑ i
                        x
                     ∑ i ij X i                j Xi


xij
      X i is the value-added share of commodity j in the country’s overall export basket.
                                                            9
sophistication than technology measures alone, such as the superior market knowledge, design
and logistics present in high-income countries.

         Adapting either technology or sophistication based classification of manufacturing
activities into a modern and traditional framework is relatively straightforward. High technology
trade can be viewed as modern trade, whereas resource-based and low-technology trade is
evidence of traditional trade. Because the sophistication measure does not align well with such a
discrete division, we rely on country positions relative to a cross-country fit of this export
sophistication index and levels of per-capita GDP.

        On the services side, Baumol (1985) outlined a taxonomy within the services-producing
industries based upon their assumed productivity performance: 1) stagnant personal services,
such as education, in which output is highly correlated with labor-time expended; 2) progressive
impersonal services, where there is virtually no contact between customers and the production
process, an example being telecommunications; and 3) asymptotically stagnant impersonal
services, which is an amalgam of the previous two, an example of which is broadcasting. In the
discussion that follows, we use a simplified adaptation of Baumol’s services classification that
separates out service-activities by industry into “modern� and “traditional� sectors.

        Using IMF Balance of Payments data on services trade, we define “modern� services as
communications, insurance, financial, computer and information, and other business services;
and “traditional� services as travel, transportation, construction, personal, cultural and recreation,
royalties and license fees and government services (see World Bank 2009 report on Service
Revolution and Mishra et al. 2011 for details). This distinction roughly coincides with the level
of international competition and education requirements of the labor force in the service
industries. In addition, modern services can be characterized as those activities which can be
produced, stored, and transported digitally, and therefore do not need to cross physical borders.
For details on the recent transformation in service activities see Box 2.

       An alternative context for the distinction in services is given in the WTO Agreement on
Trade in Services. Under the GATS agreement service exports can be delivered in four different
ways:
   •   Services being provided remotely across borders, such as IT and IT-enabled service
       exports (mode 1), which account for some 28 percent of global trade in services;
   •   Consumption abroad such as tourism and travel (mode 2) which account for some 14
       percent of global trade in services;
   •   Commercial presence through foreign direct investments (mode 3) which account for
       some 57 percent of global trade in services;
   •   Movement of natural persons which brings in remittances (mode 4) which account for
       some 1 percent of global trade in services.

Hence, modern services are inclusive to mode 1 and to some extent mode 3, whereas mode 2 and
4 require movement of people to deliver the services. Similar to the case for goods, classification
of services on the production side is more difficult. Detailed industry-level data on value-added
and employment tends to be limited. However, for a rough approximation we classify

                                                 10
wholesale/retail trade and hotel/restaurants as traditional with finance, insurance, real estate, and
business services as modern services.


                   BOX 2. CAN SERVICES BE THE NEXT GROWTH ESCALATOR ?

      For more than 200 years, it was argued that economic development and growth was associated with
      growth of the labor-intensive manufacturing sector (Baumol 1967, Kaldor 1966, UNIDO 2009).
      Services were considered as menial, low-skilled, and low-innovation (McCredie and Bubner 2010).
      Over the last three decades, services have contributed more to growth, in both developed and
      developing countries, than the goods sector. Furthermore, conventional wisdom has been that labor-
      intensive manufacturing creates the most jobs in developing countries, recent data suggest
      otherwise; employment growth has been most rapid in the services sector. In developed and
      developing countries alike, labor is being shed from both agriculture and manufacturing.

      In the goods sectors, technologies have matured and developing countries already have a large
      market share and have achieved significant scale economies. However, modern services appear to
      be steadily expanding, with catch-up opportunities continuing to rise. As broadband penetration in
      developing countries continues to grow and improve in speed and quality, it is easy to see greater
      possibilities for modern service exports from low- and middle-income countries. In fact,
      technological change in the services sector is now larger than in the goods sector, suggesting that
      services may be the next escalator for growth in developing countries. Although India is the most
      famous case of services-based growth, it is not the only developing-country example. Armenia,
      Bangladesh, Kyrgyz Republic, Moldova, Mozambique, Pakistan, Philippines, Romania, Rwanda,
      and Sri Lanka are among a group of developing countries that have increased their revealed
      comparative advantage in modern services exports. As a group, lower middle–income and low-
      income countries have a higher RCA in modern services than in goods exports, and a higher RCA in
      modern services than high-income countries.

      The range of modern services that can be digitized and traded globally is constantly expanding.
      India has been a pioneer, but many other poor countries are finding it easier to generate productivity
      growth in services than in industry. Services expansion provides an alternative growth escalator for
      developing countries. Figure B1 shows that the rise in services’ contribution to growth is linked to a
      rise in productivity growth in the sector. Labor productivity growth in rich countries has been higher
      in services than in industry, and it remains positive. That implies that the global technology frontier
      for services is still shifting out, while that for industry has stagnated. At the same time, productivity
      growth in poor countries in services is accelerating and appears to have outstripped productivity
      growth in industry. In 58 out of 94 countries for which we have data, productivity growth in
      services exceeded that in industry. In 1990, modern services had a PRODY that was 10 percent
      higher than traditional services, but about 8 percent lower than that of goods. By 2007, the PRODY
      for modern services was 70 percent higher than for traditional services and 40 percent higher than
      for goods (see Figure B2). All sectors had increased the degree of technological sophistication over
      this period.

      Figure B1. Comparing Labor Productivity             Figure B2. Growing sophistication in modern activities




                                                         11
      Source: Ghani, Grover and Kharas, 2012.
       IV.      A GLOBAL COMPARISON OF MALAYSIA’S PATTERNS OF GROWTH,
                              PRODUCTIVITY, AND TRADE

        In this section we document the nature of Malaysia’s progression to achieve middle-
income status over the past several decades. In particular, we focus our analysis on the sectoral
patterns of growth in productivity and the growth and sophistication of Malaysia’s exports to the
rest of the world. The first section presents a series of growth accounting calculations that
separates Malaysia’s recent economic growth into the contributions from increased employment,
capital, labor productivity, and a residual total factor productivity measure. We also compare
these estimates to several other comparable countries to place the Malaysian experience in an
international context. The second section reviews the performance of Malaysian exports in recent
years, and presents our calculations on the sophistication of exports separately for goods and
services. Again, we place Malaysia in an international context through a series of cross-country
regressions on the interaction of trade and economic growth. An accurate exposition of what
propelled Malaysia into a middle-income status will be indispensable for charting the future path
to high-income status.

                                      Growth Accounting Calculations

        We present a series of growth accounting calculations for Malaysia for the period 1990-
2007. The growth accounting framework originates from the concept of an aggregate production
function that relates output to the contributions of factor inputs (namely, capital and labor) and a
shift component normally associated with an adjustment of the inputs for quality. Assuming
competitive markets where the factors are paid their marginal products, we can derive a simple
index number formulation that relates changes in output to changes in the factor inputs plus a
residual term typically referred to as total factor productivity (TFP). 13 For the case of Malaysia,
we use measures of output (value added) from the national accounts as published by the
Department of Statistics (DOS), and employment estimates are obtained from the labor force
surveys published by DOS. The labor input is adjusted for quality using a measure of the average
educational attainment of the labor force (also taken from the annual labor force surveys),
assuming a seven percent return per year of schooling.

        We obtain a measure of the capital input from the DOS, although at the level of
individual industries we must rely on estimates prepared by the Malaysian Productivity
Corporation. While there is some concern about data quality because these industry-level
estimates are based on limited data, we largely restrict our analysis to the level of major sector
and broad industry-groupings. Finally, there is some difficulty obtaining reliable time-series
estimates of total wage compensation by sector and industry. Because the growth accounts use
factor income shares as weights in measuring factor contributions to output, we use the wage
measure to capture the share of income attributed to labor. Currently, we have estimates of labor
income only for the benchmark year of 2000, and thus we use constant factor income shares
(also known as a Cobb-Douglas production function) for our analysis.



13
     A more detailed explanation of the growth accounting framework, is provided in Bosworth and Collins (2003).

                                                         12
                                         Total Economy

       We present the results of the growth accounting calculations for the Malaysian total
economy in Table 1. Along with the full span from 1990 to 2007, we also include two sub-
periods of the 1990s and 2000-2007. The first line of the table shows the average annual output
growth for the three periods. Despite the 1997-98 financial crisis in the midst of the period, the
1990s recorded a strong 7.3 percent average growth rate. The 2000-07 period shows a slowdown
in growth of about 3 percentage points, which demonstrates that the Malaysian economy has
never fully recovered to the pre-crisis rates of growth. However, it is worth noting that 5 percent
annual growth is still very strong by international standards. The difference in GDP per worker
growth rates is not much (3.8 in 1990-2000 versus 3.2 in 2000-07). In fact TFP growth appears
to have increased in the latter period. It is more valid to point to generally weak growth in
Malaysia over the whole period, relative to countries that have “graduated “ from MIC status
(Korea, Singapore or Taiwan). Malaysia may therefore be an example of a country that is stuck
in a MIT without having undergone a substantial growth slowdown.

        Roughly two-thirds of the fall in output growth that has occurred in the most recent
decade can be attributed to slower employment growth, while there is a less pronounced
slowdown in labor productivity growth. Decomposing the changes in output per worker into
changes in capital per worker, education, land, and TFP, we see a large decline in the role of
capital per worker growth combined with a modest increase in TFP growth. What is perhaps
more surprising than the increases in TFP is the nonexistent contribution of TFP during the
strong growth of the 1990s. This is most likely due to the disruptive forces resulting from the
financial crisis in the middle of the period. The contribution to output per worker attributed to
educational gains remained constant in both periods.

        In general, the falloff in output and labor productivity growth in the 2000s is largely a
consequence of a decreased rate of capital accumulation following the financial crisis.
Investment rates that averaged roughly 40 percent of GNI in the early part of the 1990s have
fallen to an average of 22 percent for 2005-2007. We now turn to a sectoral analysis of
productivity to give a broader context for these changes.

                                            Major Sectors

       Table 2 displays the disaggregated growth accounts results for Malaysia at the sectoral
level of agriculture, manufacturing (the defining subset of industry) and services. First,
considering the full sample 1990-2007, the large discrepancy in growth rates between agriculture
and manufacturing/services is clearly evident. In fact, the average growth rates between
manufacturing and services during the sample are nearly identical, with employment growth
playing a larger role in the services sector.

        Looking to the two sub-periods of our sample, several interesting developments come
out. First, the output slowdown is more pronounced in the manufacturing sector, with a five
percentage point drop in the average annual growth rate after the 1990s. However, because
employment has actually fallen during the 2000s, output per worker has increased to an average
of over 6 percent per year. Second, although 1990s growth in output per worker between
manufacturing and services was relatively comparable, the more recent period has seen a

                                                13
divergence in productivity growth rates between the two sectors. Indeed, the average annual
growth in labor productivity in services during 2000-07 is less than half that of manufacturing.
Finally, despite the low rates of capital accumulation in the total economy, the contributions of
capital to labor productivity growth in manufacturing increased in the later sub-period. And
because TFP growth fell in the 2000s in both services and manufacturing, this relatively strong
capital formation in manufacturing amounts to much of the divergent productivity growth
between the two sectors. Thus, the decreased rate of capital accumulation in the total economy
identified above may be largely concentrated in the services sector.

        An alternative perspective on this point is provided in Figure 4, which plots the level of
output per worker by these three sectors during 1987-2007, in terms of Ringgit per worker. What
is strikingly apparent in the figure is that the period of catch-up between services and
manufacturing evident throughout the late 1980s and early 1990s has subsequently reversed as
services output per worker slowed while that of manufacturing continued to increase. Output per
worker in agriculture has remained relatively constant during the period, with a slight
improvement beginning in 1999.

         Improvements in labor productivity for the total economy can result from increases in
sectoral labor productivity as well as labor reallocations from sectors of low productivity to
higher productivity areas. Thus, the importance of this “residual� reallocation effect depends in
part on the degree of inter-sectoral differences in productivity and in part on changes in the
distribution of employment. Figure 5 separates out labor productivity growth for the total
economy by period into sectoral contributions and the reallocation effect. (Notice here that we
use the full industry sector rather than manufacturing alone for completeness of allocation.) First
of all, the second column pertaining to the 1990s period demonstrates the relative importance of
the services sector to total productivity growth, along with a minor contribution from
reallocation. Keep in mind that the contribution of each sector to the total is a function of the
growth in sectoral productivity weighted by that sector’s share in output. Perhaps most
importantly, the third column of Figure 5 clearly shows the stronger role of manufacturing in the
2000s, with a reallocation effect that actually turns negative. The negative reallocation effect can
be explained by a reduced labor productivity growth in services during that period, combined
with a services employment share that increased from 49 percent of the total in 2000 to nearly 54
percent in 2007. Thus, in this case, labor was moving out of the relatively more productive
industry sector into a less productive services sector during the more recent period.

                                   International Comparisons

       We now place the experience of Malaysia in a broader international context through
comparing the sector-level output and productivity growth of similar countries. In addition to
examining the relative performance of the industry/manufacturing and service sectors in these
countries, we can also assess the levels of productivity among countries and sectors. We take
country-level data from a variety of sources, including Bosworth and Collins (2003), World
Bank (2009), and various national accounts published by country statistical offices.

       We compare the level of output per worker in 2005 by major sector for several countries
in Table 3, using international purchasing power parity dollars to adjust for differences in price
levels among the countries. The total-economy productivity levels broadly align with
                                                14
expectations given the level of development of each economy. However, there is a greater level
of variation in the levels of output per worker within sectors. First, looking at column two,
Malaysia appears to have a relatively efficient agricultural sector compared to the other countries
in the table. In contrast, agriculture in India appears to operate at a low productivity level relative
to the total economy. Second, the gap between productivity in industry and services in Malaysia
also stands out when placed among a group of similar South and East Asian countries. In
addition, we calculate the ratios of services to agriculture and services to industry in columns
five and six respectively. As is evident in these columns, Malaysia has the lowest ratios of all
countries presented, implying the relative performance of the services sector is low in Malaysia
from an international perspective. To some degree the results in column five may reflect the high
agricultural productivity in Malaysia; however this is not the case with regard to the industry
sector as it appears to score low relative to the average of other countries.

        The sectoral contributions to total labor productivity growth – along with the reallocation
effect – presented in Figure 5 can be re-weighted in order to see the percent contributions to
output per worker growth of each sector. One disadvantage of this exposition is that the actual
magnitude of the overall growth is lost; yet the perspective of shares is useful for easily gauging
the importance of each sector to the total. We use such a presentation in Figure 6, where we
display two periods of growth for the countries of Malaysia, Korea, India, China, and the United
States. For the two East-Asian countries and India, it is striking how the results broadly accord
with popular perceptions of the regions: there is a dominant contribution of the industrial sector
in both Korea and China, while India relies mostly on services for overall productivity growth.
As a high-income country with a large service sector, the United States also records high
contributions from services along with minimal benefits from reallocating labor among the
sectors. Malaysia appears to fit somewhere between India, the U.S. and the East Asian countries.
While the services sector contributes more than 40 percent of total productivity growth in both
periods, it is clear that industry becomes the dominant sector beginning in the year 2000.

        A final international comparison of Malaysia’s output and productivity performance is
shown in Table 4. Malaysia’s average annual growth in output, employment, and output per
worker is compared to three other East Asian countries for the period 1998-2006. As
demonstrated in the second and third rows of the table, the growth of the industry/manufacturing
sector in Malaysia compares favorably with the other countries, though it falls considerably short
of the phenomenal performance of Korea in both output and output per worker. In the services
sector, however, Malaysia records the highest rate of output and productivity growth for the post-
crisis period. Yet, this should not come as a surprise when comparing with the traditionally
manufacturing-driven East Asian countries. In fact, when we split up the services into modern
and traditional using the classification criteria outlined above, we see that all four countries
display productivity growth in modern services that is actually lower than that of traditional
services. Although output is generally comparable between the two (with the exception of
Thailand), it seems that modern services have generated much higher rates of employment
growth than traditional services, and thereby not enjoyed comparable rates of productivity
growth. Therefore, from this perspective, it appears that the dynamism of services in Malaysia
appears to have been mostly in the traditional sectors in recent years, similar to the
manufacturing-intensive countries of East Asia. Modern services may tend to stagnate in these
countries because their infrastructure needs are so different than that for manufacturing. While

                                                  15
traditional services such as transportation and construction use some of the same infrastructure as
goods exports (ports and roads), the needs of modern service production (such as high internet
bandwidth, education) tend to be distinct (see Ghani 2010).

                                           INTERNATIONAL TRADE
        Malaysia’s recent economic growth has been leveraged by trade flows. On average, from
2000-2007 total trade was twice the size of GDP for Malaysia whereas in China or India the
magnitude of trade was modestly less with 60% and 30% of GDP respectively during the same
period. A time series comparison of Trade (% of GDP) is shown in Figure 7a. The figure
accentuates that countries such as China 14, India and Korea have had a stronger domestic
demand component of growth whereas GDP growth is leveraged considerably by trade for both
Malaysia and Singapore. Evidence suggests that more open countries seem to have experienced
faster productivity growth as economies open to the rest of the world are able to absorb the rapid
technological advances in the advanced nations. With this in mind, the following discussion
documents recent patterns in the growth and technological sophistication of Malaysia’s exports
abroad. We contrast the relative performance of manufacturing and services trade separately.
Finally, to provide a benchmark for these calculations, we report cross cross-country regressions
involving international trade and broad economic growth. These regressions should serve to
confirm whether the sophistication measures are an important indicator of successful growth.


                                     Manufacturing Trade Patterns


        The strategic location and historical role as a regional hub for commercial interactions
with the West has given Malaysia a long history of international trade in manufacturing. In fact,
the Global Competitiveness Report published by the World Economic Forum recently ranked
Malaysian ports as 13th in the world, just behind Singapore and Hong Kong SAR, China in East
Asia. In this section we evaluate the recent performance of Malaysia’s trade in goods with
special emphasis on the distinction between modern and traditional exports. First, we consider
goods exports based upon the technological classification of the OECD as discussed above in the
defining modern and traditional service sections. Thus, we use commodity-level trade data from
the UN COMTRADE database to classify Malaysia’s exports into 4 categories based upon
technological intensity. In Figure 7b, we compare the relative growth in high-technology goods
exports to low-technology and resource-based exports for several countries during 1995-2006.
Although the level of growth in Malaysia’s exports are slightly lower than reference countries
such as Singapore and Korea, Malaysia records strong growth of over 8.5 percent annually in
high-tech exports. In fact, its growth in these modern exports over the past decade has been
stronger than that of Singapore, which had relatively higher growth in lower-technology
commodities. An alternative perspective of the technological intensity of trade is shown in
Figure 7c. Here we plot a time-series of the share of high-technology exports to total goods
exports for the period 1990-2006. What is immediately striking is the high share of advanced,

14
  China, refers to Mainland China. Unless otherwise noted, data for China do not include data for Hong Kong SAR,
China; Macao, China; or Taiwan, China.


                                                      16
modern goods exports in Malaysia, which nearly rivals that of Singapore. Although the
magnitude of trade is not as high as that of China or Korea, the high level of technological
intensity appears as an impressive feature of Malaysia’s goods trade.

         For an additional perspective on Malaysian goods trade, we develop a cross-country
sample of the EXPY measure of sophistication of exports advanced by Hausmann, Hwang, and
Rodrik (2007) explained above. Using publicly available data assembled by Nicita and Olarreaga
(2007) we plot individual year scatter plots of the export sophistication index (in logs) with the
log level of GDP per-capita for a sample of around 90 countries. 15 We display three such scatter
plots in Figure 8, highlighting the relative position of Malaysia, for years 1980, 1990, and 2003
to illustrate the evolution of Malaysia’s export sophistication over time. The scatter plots show
striking evidence of the positive correlation between growth and sophistication, a relationship
which Hausmann, Hwang, and Rodrik argue runs from export sophistication to growth rather
than the other way around. The series of charts also shows Malaysia’s rapid climb up the
sophistication ladder: while significantly below the predicted level in 1980, Malaysia has
advanced its manufacturing exports to attain one of the highest index values in the world. Of
course, the position of Malaysia in 2003 well above the trend line would imply a higher level of
development (it is notable that Singapore lies at a similar level of sophistication) than Malaysia
currently enjoys. The final figure in the series plots all countries for all years (1976-2004) in our
sample. This figure nicely summarizes the movement of Malaysia over time from a low level of
sophistication to one of the world’s highest.

                                           Service Trade Pattern


        Both modern and traditional service exports have been growing rapidly at the global
level. In fact, since the 1980s, the global trade in services has grown faster than the global trade
in merchandises goods, though services trade remains at a far smaller magnitude. Figure 9
compares the trend in share of service trade in service value added for developing and developed
countries for the period 1985 to 2005. What stands out is that the ratio of service trade in service
output for developing countries has increased much faster than for developed countries. This
suggests that developing countries are more focused on production of services that can be traded,
rather than for domestic consumption. In addition, modern service exports are growing much
faster than traditional service exports. However, within developing countries, some regions have
benefitted more than the others in modern services trade.

       According to our distinction of modern and traditional identified above, modern services
exports peaked in Malaysia in 1998 with a share of 59 percent, but have fallen dramatically in
more recent years to levels around 20-25 percent. This rapid decline is largely a combination of
reduced exports of ‘other business services’ combined with an expansion of traditional ‘travel’
exports. Both modern and traditional services recorded healthy growth of 10-12% annually
during the early 1990s; however more recently the expansion of services trade has been more
skewed. As shown in Figure 10, Malaysia has witnessed negative growth in modern service
exports during the period 2000-2006, whereas most developing countries have seen growth in

15
  The sample of countries varies from year to year. Please see Nicita and Olarreaga for a more complete description
of the data.

                                                        17
excess of 10 percent a year.

        Similarly, Figure 11 and 12 give a more detailed view of the evolving patterns of service
exports from Malaysia. First, Figure 11 shows the export basket in 1995, 2000, 2007 and 2009
by the basic 10 categories available from the Balance of Payments. We note that travel and
transport service dominate over 60 percent of Malaysia’s service exports, whereas as the relative
share of modern business services progressed around 2000 but did not manage to keep up over
the last decade. Hence, Figure 12 gives even a more detailed look at the 74 categories of service
exports in 2000 and 2009, whereas the third column reports the change in share of the particular
export in total service export basket. Modern services are coded orange and blue is used for
traditional services. Several creative, visual services and digital services are not reported by
Malaysia however there are signs of progress. The share of computer and information services is
approximately 2 percent of service export basket, whereas business services have been declining.
In particular, business travel services are continuing to grow very fast.

         We now present a preliminary measure of the sophistication in service exports that seeks
to mirror the EXPY measure of Hausmann, Hwang, and Rodrik for goods that we employed
above. 16 Mishra, Lundstrom and Anand 2011 repeat the same exercise for service exports and
shows that there is increasingly a stronger association between moving to more productive
modern services and economic growth. We use the IMF Balance of Payments and plot the trend
of the sophistication for selected emerging economies in Figure 13. Malaysia maintained a
sophistication level in services above that of China until 2003, but since then the Chinese export
service sophistication has increased while Malaysia has lagged behind the remaining sample of
middle income countries. In contrast, India has emerged as a big player in the delivery of
complex services as measured by EXPY in post 2000. India is followed by Singapore and Korea
in their level of service export sophistication.

        Figure 14 plots individual year scatter plots of the export sophistication index (in logs)
with the log level of GDP per-capita for a sample of around 147 countries. The two panels
highlight the relative position of Malaysia in 1995-98 and 2007-09 (averages). First, the scatter
plots confirm the finding that countries with higher export sophistication have higher income per
capita. Second, the two panels demonstrate the stagnancy of Malaysia’s relative sophistication
level over time, and its overall position below the global mean in 1995 and 2005. Malaysia has
made improvements but lags behind competitive and sophisticated service exporters like
Singapore and Korea but ahead of Thailand in the sophistication of service exports. As expected,
India stands out as a huge outlier in export of modern services.

        The modern service sector has become an important driver of growth in both developed
and developing countries. In particular, Figure 15 compares what has happened in some 136
countries between 2000 and 2005 in terms of real GDP growth, shown on the vertical axis and
service value added growth, shown on the horizontal axis. Each point represents one country.
The positive relationship between the two variables implies that countries with high growth in
services also tend to have high overall economic growth or conversely that countries with high
overall economic growth have high services growth. One cannot identify causality from a

16
  This measure is more suggestive than authoritative, however, as we are forced to use approximately ten different
service categories as income weights, rather than the few thousand commodities employed in the goods calculation.

                                                       18
regression like this; however the correlation is robust with countries at different stages of
development.
                 Cross-Country Regressions on Trade in Goods and Services


        Analysis of the cross-country performance of exports further reveals how the export
sophistication of trade impacts the long-term success of a country’s exports in international
markets. Table 5 reports cross country regressions on goods and service exports as a share of the
total export basket. We control for initial conditions with log GDP per capita and nonlinearities
in growth with squared log GDP per capita. In addition, we control for size with the inclusion of
land area of the countries in the regression and also create categorical indicators for Malaysia,
Singapore, India and China. We see that Malaysia has always been a significant negative outlier
in the service share of exports, and has become more of an outlier over time in this regard. The
third panel reports the share of computer and information services as a share of total export
basket. Malaysia seems to have a significantly lower share of these service exports in its total
export basket compared to the rest of the world. Thus, it seems apparent that much of the growth
via trade channel for Malaysia has occurred through manufacturing trade. This evidence further
points to the relative weakness of the services sector, and in light of the growth and productivity
enhancing effects of tradable identified earlier, demonstrates an opportunity for growth in the
future.

        Finally, Figure 16 plots the Revealed Comparative Advantage of (RCA) for goods and
services in Malaysia over time. The RCA measure represents the share of a specific sector’s
exports in the country’s total export basket with respect to the share of world exports of that
sector in the world export basket. The RCA illustrates that goods are a substantially higher
comparative advantage than services in Malaysia. The production of manufactured goods drives
Malaysia’s export markets concurrent to its specialization.

        Our analysis of the past performance of the Malaysian economy demonstrates that strong
export-led manufacturing growth played a dominant role in moving Malaysia up the income
ladder. Although output and productivity growth slowed in the years after the financial crisis of
1997-98, the goods-producing sectors continued to show higher rates of growth in output-per-
worker and TFP than the services sectors. Similarly, Malaysia has become one of the world
leaders in the sophistication of its goods exports; however, preliminary evidence demonstrates
that services are considerably less sophisticated. With future growth in manufacturing
constrained due to increasing wage costs relative to low-income competitors, the prior growth
patterns of Malaysia do not appear to offer a path out of the middle-income trap.


    V.      HOW WILL POTENTIAL CHANGES IN GLOBALIZATION
                 IMPACT MALAYSIA’S FUTURE GROWTH?
         Globalization has accelerated growth in Malaysia over the last three decades and has
facilitated Malaysia’s transition from a low income to a middle income economy. But the post-
2008 global downturn may potentially change globalization itself, as developed countries
continue to adjust to global imbalances that contributed to the crisis.

                                                19
The prospects of the emerging markets will depend on two different models of globalization:

   •   Trade Globalization--dependence on external demand
   •   Capital Globalization--dependence on external finance

These same two models of globalization will play a crucial role in understanding what Malaysia
can do to get out of the middle-income trap and weather the global economic downturn. The
emerging markets that are best poised to enjoy a speedy recovery (following a V-shaped
recession) are those that do not depend excessively on external finance, external demand, and
have strong fundamentals in economic management to cope with global shocks. The external
demand component is an impending constraint for Malaysia and the trade channel will play an
integral role for Malaysia to grow. In this section we investigate how these two major channels
of globalization--trade flows and capital flows--will impact Malaysia’s growth strategy.

                                   Trade Flows Globalization

        As highlighted in a previous section (see Figure 7a), Malaysia’s growth is substantially
leveraged by trade flows. Many countries have accelerated their recovery with the help of
expanding exports. The recovery of Malaysia and other East Asian countries following the
financial crisis in the 1990s was achieved by exporting to developed countries. In the global
crisis following 2008, trade is expected to grow more slowly as the crisis is global – and not
regional – in scope. There will be less demand for exports from Malaysia as consumers in United
States and other high-income countries save more, adjust to change in asset prices and risk, and
go through the process of financial deleveraging. The large imbalances between savings and
investment in developing and developed countries contributed to this crisis, so some adjustment
in global imbalances will slow down the role of trade in this recovery. However, this perception
is based on a narrow view of how trade stimulates growth.

         The impact of trade on growth is determined not just by the size of exports, but also
externalities and knowledge spillover that trade brings and which are vital to growth (see Stewart
and Ghani 1991). The post-2008 global crisis has not reduced the stock of global knowledge
available in developed countries which will benefit developing countries as long as they expand
their tradable sector.

        Second, composition of trade matters. Those countries that can transform their tradables
from traditional to modern will be more resilient and will continue to benefit from changes in
globalization. Globalization of service is the tip of the iceberg (Blinder 2006). Trade in services
will continue to increase despite this downturn (see World Bank 2009). Service exports are more
resilient than goods exports as reflected, for example, by less volatility in India’s service exports
compared to China’s good exports. The internet age will continue to transform more services
into modern impersonal services.

       The range of services that can be globalized and digitized is constantly expanding:
processing insurance claims; desktop publishing; the remote management and maintenance of IT
networks; compiling audits; completing tax returns; transcribing medical records; financial
research and analysis. The list of possible activities is almost endless. The globalization of
services will continue to be a strong force for two reasons. First, services account for more than

                                                 20
70 percent of global GDP, more than double in size compared to the manufacturing sector. So,
there is tremendous scope for services globalization. Second, the cost differential in the
production of services across the world is enormous. In the past, the only option to narrowing
such cost differentials was through migration, but migration has been heavily regulated and
global international migration has remained steady at about 3 percent for decades. Now that
service providers can sell services without crossing national borders by making use of the
internet (outsourcing), the scope for exploiting cost differentials is much higher. What is more, it
is very hard for governments to regulate modern impersonal services, so prospects for rapid
expansion in service exports are good.

        Third, modern impersonal services have many features in common with manufacturing.
Like manufacturing, they benefit from technological advances that generate productivity growth
year after year. They exhibit similar tendencies for scale and agglomeration economies. Service
producers can bring down unit costs by expanding operations. They benefit from being in close
proximity to one another which creates a pool of well-trained workers. They are labor intensive.
Malaysia still faces a huge convergence gap with the high income countries on service trade. So
there is potential for Malaysia to expand its service sector as it is yet to take full advantage of
globalization of services.

                                  Capital Flows Globalization

        The past few decades have highlighted the fact that the globalization of capital provides
both risks and benefits for developing countries. Well-known benefits include cheaper access to
capital, technology transfer, upgrading of management practices, and increased risk sharing.
Greater exposure to volatility and the transmission of outside business cycles are among the risks
of high levels of reliance on foreign capital inflows. The critical task facing developing countries
in the 21st century is how to achieve the promised benefits of capital-account liberalization while
hedging against the increased fragility that often accompanies it.

        Complicating the task for developing countries are generally declining capital inflows
following the post-2008 global crisis and downturn; a result of increased deleveraging of
financial institutions and higher degrees of risk aversion. It will take time for private foreign
capital flows to recover, and even then the capital flows will be less accessible to developing
countries in a new risk-averse environment, and higher cost of capital. This could slow down the
process of economic recovery in developing countries, and countries that have relied on external
finance could take a deeper hit.

       How dependent is Malaysia on external finance? Recent evidence indicates that Malaysia
depends comparatively little on external finance. This is reflected in its external current account
balance and in high savings and investment rates. In fact, the huge external current account
surplus shows that Malaysia is in fact a net exporter – rather than importer – of capital (see
Figure 17).

       Malaysia’s investments are largely driven by domestic savings which has safeguarded the
economy from the volatility in international financial markets. A high level of domestic saving
enables a country to cope much better with reduced capital inflows. So is Malaysia an outlier in
savings and investments compared to the rest of the world? Table 6 Panel B reports the results
                                                21
of a cross-country regression for more than 100 countries, after controlling for the stage of
development, non-linearity’s in development and country specific features. Malaysia remains a
large and significant positive outlier in savings and is above the global norm. It is a more
pronounced positive outlier than India but less of an outlier compared to China. This bodes well
for Malaysia.

        Panel A of Table 6 reports the results of a similar regression for investment. In 1995
Malaysia was a significant positive outlier in investment compared to the rest of the world after
controlling for income per capita, size and non-linearity in growth. It was a bigger outlier than
either China or India. However, the investment boom in Malaysia appears to be over. The
investment patterns now appear to be no different from the rest of world, once we control for the
stage of development. More importantly, the cross-country regressions highlight that dependence
on external finance has declined over time for Malaysia.

        Which sectors will be impacted by the decline in investment rates? Table 7 Panel A and
B report cross-country regression results for manufacturing and service output as dependent
variables for the time period 1995-2007 for over 150 countries. The results indicate that
investment is more important for growth in the more capital intensive manufacturing sector than
services growth.

        The combination of high domestic savings and declining demand for external financing
has safeguarded Malaysia from the volatility of international financial markets. On the other
hand, Malaysia is therefore not taking advantage of the collateral benefits of financial
globalization. Malaysia has not taken full advantage of network externalities that countries such
as Singapore have utilized from financial globalization. The flow of foreign financing in
Malaysia is directed towards the goods export basket whereas neighboring countries like
Singapore have taken advantage of globalization of services.

        Foreign Direct Investment (FDI) is generally regarded as highly effective mechanism for
the transfer of technology, skills, and management practices. In addition, it is less prone to
volatile swings in line with global business cycles, as the foreign-held assets are in general long-
term. To examine the openness of Malaysia to FDI, we use the FDI Regulatory Restrictions
Index published periodically by the OECD. This index, published at the sector level for a variety
of countries, should provide a natural gauge for the openness of Malaysia to FDI across sectors
and over time.

         The OECD separately examines four distinct measures of restrictions: i) foreign equity
restrictions; ii) screening and prior approval requirements; iii) rules for key personnel; and iv)
other restrictions on foreign enterprises. 17 We report the total index score, summing over these
four measures, which is scaled between 0 (no restrictions) and 1 (foreign ownership forbidden).
Figure 18 summarizes our findings over the period 1997-2012. Panel A compares the index score
between the manufacturing sector and the Tertiary sector for Malaysia. 18 As is clear from the

17
   Rules on state ownership are not scored, provided they are not discriminatory toward foreign enterprises in
particular. For more information on the methodology, see Kalinova et al (2010).
18
   The Tertiary sector consists of Distribution, Transport, Hotels and Restaurants, Media, Communications,
Financial Services, Business Services, and Real Estate Investment.

                                                         22
graph, although the tertiary sector has become less restrictive in recent years, the gap relative to
manufacturing remains substantial. Panel B of Figure 18 compares the index scores for the
Tertiary sector in India, China, and Korea. Although Malaysia compares favorably with China
and India, it has lagged behind the more advanced economy of Korea. Finally, Panel C highlights
that there is large heterogeneity in this index even within the Tertiary sector in Malaysia.
Subsectors like business services communication have seen recent improvements, whereas the
media and distribution subsectors remain largely restricted to foreign-owned firms.

        The evidence above makes clear that Malaysia has further progress to make in order to
take advantage of the collateral benefits of FDI inflows. Moreover, we find that Malaysia has
lagged behind in the services sector in particular, which may perhaps have been a handicap on
the productivity advances of this sector in recent years. Recent efforts to liberalize the services
sectors in Malaysia should help to bring in internationally competitive firms which should lead to
spillover benefits to domestic firms in the market.


                  VI.    WHAT SHOULD POLICYMAKERS DO?
        Malaysia, a small open economy is squeezed by the competition from low-wage
economies on the one hand, and more innovative and advanced economies on the other.
Malaysia’s structural transformation from low income to middle income status is a success story.
It leveraged globalization (trade, capital, and economic management) to expand the tradable
sector, and has become one of the most sophisticated exporters of manufacturing goods. But
Malaysia has yet to modernize its large service sector.

        Policymakers should promote entrepreneurship and innovation to begin reaping the
benefits of information networks and skilled labor before the gains from cheap labor and
knowledge spillovers are exhausted. Rapidly expanding the secondary and then tertiary
education system will be critical in producing graduates with the skills that employers require.
Highly skilled workers and professionals are an indispensable ingredient of high valued added,
modern services and manufacturing. The “skills crisis� is a well-known shortcoming of the
Malaysian economy. The response "Not enough good people" is a common complaint among
business owners in Malaysia.

        Attracting highly productive foreign firms to locate production in Malaysia is another
area that policymakers should devote their focus. Apart from the direct benefits of high wages,
imported capital equipment, and substantial tax revenues, the spillovers between these firms and
the broader economy are well-documented. The current degree of restrictions on foreign-owned
firms – particularly in the services sector – might be hindering the potential for FDI to stimulate
further growth.

        Developing the services sector holds the greatest promise for high impact reform. In
particular, providing access to learning and training opportunities to build social entrepreneurs
and product innovations will be crucial. The promise of service globalization means that
Malaysia should utilize the market space provided by the Internet to foster business and


                                                23
technological innovations for the global economy. In this respect, the interaction of spatial
transformations will be paramount.

        The range of modern services that can be digitized and traded globally is constantly
expanding. India has been a pioneer, but many other emerging markets are finding it easier to
generate productivity growth in services than in industry. This does not happen automatically.
Although the same set of general non-distortionary policies is as important for modern services
as for goods, specific strategies for services matter like market integration and the technological
changes in information networks. Services expansion provides an alternative growth escalator for
emerging markets like Malaysia. The globalization of service has just begun. The modernization
of services is a promising way out of the middle income trap.




                                                24
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                                               27
Appendix TABLE OF CONTENTS

Figures
Figure1. GDP per capita 1980-2007, constant 2000 PPP dollars
Figure 2. Urbanization Rate and Growth in Urbanization
Figure 3. Industrial De-concentration and Urbanization
Figure 4. Malaysian Output per Worker: Major Sectors: 1987-2007
Figure 5. Malaysia Sector Contributions to Output per Worker 1990-2007
Figure 6. International Comparisons, Shares of Sector Contributions to Output per Worker 1990-2007
Figure 7a. Trade as a Percent of GDP: 1980-2007
Figure 7b. Average Annual Growth in Goods Exports by Country and Technological Intensity, 1995-2006
Figure 7c. Share of High-Technology Goods Exports, Selected Countries 1990-2006
Figure 8. Country Scatter-Plots: Log per-capita GDP and Log Goods Export Sophistication
Figure 9. Exports of Services as a Share of Service Value Added, Developing vs Developed Countries
Figure 10. Modern & Traditional Service Export Growth, 2000-2006
Figure 11. Composition of Service exports by broad 10 categories, Malaysia
Figure 12. Evolution of Malaysia’s service export basket, detailed view
Figure 13. Service Sophistication Index (EXPY) for Select Emerging Economies, 1990-2007
Figure 14. Country Scatterplots: Log per-capita GDP and Log Services Export Sophistication
Figure 15. Panel A: GDP Growth and Service Value-Added Growth (2000-2005)
Figure 15. Panel B: GDP Growth and Manufacturing Value-Added Growth (2000-2005)
Figure 16. Revealed Comparative Advantage in Goods and Services, Malaysia
Figure 15. Current Account Balance as Percent of GDP: Malayia and USA 1980-2007
Figure 16. Central Government Debt as % of GDP, 2007
Figure 17. Current Account Balance as Percent of GDP: Malayia and USA 1980-2007
Figure 18. FDI Regulatory Restrictions: 1997-2012

Tables
Table 1. Sources of Growth, Total Economy: 1990-2007
Table 2. Sources of Economic Growth by Major Sector, 1987-2007
Table 3. Labor Productivity Levels, by Sector, 2005
Table 4. Sources of Growth by Sector for Malaysia, Thailand, Korea, and Taiwan, China: 1998-2006
Table 5. Share of Service and Goods Exports in Total Exports
Table 6. Cross-Country Determinants of Investment and Saving, Percent of GDP
Table 7. Panel A. Service is less vulnerable to the investment downturn
Tabel 7. Panel B. Malaysia’s “manufacturing� output is more vulnerable to the investment downturn




                                                 28
Figure 1. GDP per capita 1980-2007, constant 2000 PPP dollars

                                      30000

                                                                                   Taiwan
  GDP per capita, constant 2000 USD




                                      25000



                                      20000



                                      15000

                                                                                                      Korea
                                      10000


                                                                                                       Malaysia
                                      5000



                                         0
                                              1980   1983   1986   1989   1992   1995   1998   2001    2004   2007


Source: Malaysia and Korea, World Development Indicators 2009; Taiwan, China, Directorate General of Budget,
Accounting, and Statistics 2009




                                                                           29
Figure 2. Urbanization Rate and Growth in Urbanization
 100                                                                                                      3.5

   90
                                                                                                          3
   80

   70                                                                                                     2.5


   60
                                                                                                          2

   50

                                                                                                          1.5
   40

   30                                                                                                     1

   20
                                                                                                          0.5
   10

     0                                                                                                    0




                                             2011    1980       Growth 1980-2011 urban population share
Source: World development Indicators, 2013.
Note: 1980 and 2011 Urbanization Shares are on the lext axis, the growth in urban population share on the right.

Figure 3. Industrial de-concentration and urbanization
                                   20
 Employed Population in Industry




                                   15
    Change in the Share of




                                   10
                                                            China
                                    5
         (1990-2005)




                                    0
                                         0          20              40      60         80         100     120

                                    -5
                                                                                      USA

                                   -10


                                   -15


                                   -20


                                   -25
                                                              Urbanization Rate (1990)
Source: World development Indicators, 2013.




                                                                           30
Figure 4. Malaysian Output per Worker: Major Sectors: 1987-2007
                   100




                             80
                                                                          Manuf acturing
  Thousands of 2000 Rm




                             60




                             40

                                                                                                Services


                             20


                                                                                      Agriculture
                              0
                                   1985               1990         1995   2000                2005



Figure 5. Malaysia Sector Contributions to Output per Worker 1990-2007

                             4.5

                              4

                             3.5

                              3
     Annual Percent Growth




                                                                                               Reallocation
                             2.5
                                                                                               Services
                              2
                                                                                               Industry
                             1.5
                                                                                               Agriculture
                              1

                             0.5

                              0
                                          1990-2007          1990-2000    2000-2007
                      -0.5




                                                                    31
Figure 6. International Comparisons, Shares of Sector Contributions to Output per
Worker 1990-2007
                                            %
                                     100

                                            90

                                            80
 Contribution to total labor productivity




                                            70

                                            60

                                            50

                                            40

                                            30

                                            20

                                            10

                                             0
                                                 1990s    2000-06          1990s   2000-04       1990s   2000-05             1990s   2000-07         1990s   2000-05
                                                        India                  China              United States                 Malaysia                 Korea

                                                                               Reallocation    Agriculture        Industry      Service

Source: World Bank 2009.

Figure 7a. Trade as a Percent of GDP: 1980-2007
                                   500

                                   450

                                   400

                                   350

                                   300

                                   250

                                   200

                                   150

                                   100

                                            50

                                             0
                                                 1980               1985                1990             1995                2000                 2005

                                                                    Malaysia           Korea      Singapore             China             India

Source: World Development Indicators, World Bank. 2009.



                                                                                                    32
Figure 7b. Average Annual Growth in Goods Exports by Country and Technological
Intensity, 1995-2006
  35


  30


  25


  20


  15


  10


   5


   0
             Malaysia              Singapore           Korea             India            China
                    High Technology Exports              Low-Tech & Resource-Based Exports

Source: UN COMTRADE data from technological intensity calculations as explained in text.

Figure 7c. Share of High-Technology Goods Exports, Selected Countries 1990-2006
   70

   60

   50

   40

   30

   20

   10

       0
           1990         1992        1994       1996       1998         2000        2002    2004      2006

                        Malaysia           Singapore           Korea             China       India

Source: same as above.




                                                         33
Figure 8. Country Scatter-Plots: Log per-capita GDP and Log Goods Export Sophistication

                                                                                                           1980
   Manufacturing Export Sophistication Index (in logs)
                                                  9.4

                                                                                                                                                                        QAT

                                                                                                                                            GAB
                                                                                                                                             SWEUSA
                                                                                                                                         JPN CAN
                                                                                                                                         GBR
                                                                                                                                          FIN     CHE
                                                                                                                                OMN         FRA
                                     9.2




                                                                                                                                          ITA
                                                                                                                                    ESP       NOR
                                                                                                                                             NLD
                                                                                                                                      TTO AUT
                                                                                                           JORDZA
                                                                                                                PAN MEX VEN
                                                                                                          TUN ROM                                            KWT
                                                                                                                       CYP       ISR
                                                                                                                                SGP
                                                                                                                  POL HUN IRL         DNK
                                                                                                                 TWN       PRT HKG
                                                                                                                        MLT
                                                                                                           KOR                       AUS
                                                                                              IDN              IRN BRA
                          9




                                                                    CHN NGA KEN                          SLV         ZAF
                                                                                            LKA              COL              GRC
                                                                                                  EGY
                                                                                                     MAR       MYS CHL
                                                                    UGA               IND                                                  MAC
                                                                                                        PHL
                                                                                                      BOL       PER
                                                                                                    THA         ECU                  ARG
                                                                                MOZ
                                                                                GHA SEN                                        URY
                                                                                              CIV        TUR
                                                              TZA                                                                           NZL
              8.8




                                                                                    MNG                                                           ISL
                                                                                                                         CRI
                                                                                BEN            HND                      MUS
                                                                                               CMR         GTM
                                                                                       PAK
                                                                          NPL
                                                                    MWI             BGD
   8.6




                                                         6                      7                   8            9                                      10                11
                                                                                            Log Per capita GDP PPP I$2000



                                                                                                           1990
   Manufacturing Export Sophistication Index (in logs)




                                                                                                                                                                 JPN
                                                 9.4




                                                                                                                                                                 SWE
                                                                                                                                                               FIN
                                                                                                                                                                   USA
                                                                                                                                                           GBR
                                                                                                                                                           SGP CAN CHE
                                                                                                                                  MEX
                                                                                                                                PAN                           FRA
                                                                                                                                                  MLT ESP      AUT
                                                                                                                                                     IRL    ITA
                                                                                                                                                 TWN
                                                                                                                                                       CYP       NOR
                                                                                                                 JOR                                           DNK
                                                                                                                                                              NLD
                                                                                                                                                               HKG
                                                                                                                                 MYS
                                  9.2




                                                                                                                                  KOR                                   QAT
                                                                                                                  SLV
                                                                                                                      POL                OMN ISR
                                                                                                                                         PRT
                                                                                                               PHL   ROM BRA       HUN
                                                                                                                                 TTO
                                                                                                                  THA                   GAB
                                                                                           CHN                     TUN                            AUS
                                                                                                            MAR
                                                                                                          EGY               VEN              KWT
                                                                                   MOZ                               DZA     ZAF
                                                                                                                     COL CHL
                                                                                                                        CRI
                                                                                YEM
                                                                                  NGA                                         ARG      GRC
                                                                                       KEN    IND                 TUR                         NZL
                                                             TZA
                     9




                                                                                                      LKA PER ECU                                   ISL
                                                                                    GHA SEN                GTM
                                                                                                    BOLIDN                                         MAC
                                                                                                                                   MUS
                                                                                                  HNDCMR
                                                                                                                             URY
                                                                     UGA                    MNG
                                                                                                  CIV
                                                                     MWI                                        IRN
                                                                                    BEN
       8.8




                                                                                             BGD

                                                                                                     PAK
                                                                                    NPL


                                                         6                            7                 8              9                                           10
                                                                                            Log Per capita GDP PPP I$2000




                                                                                                                 34
Manufacturing Export Sophistication Index (in logs)                                                              2003
                                                                                                                                                                  IRL
                                             9.6
                                                                                                                                                              JPN
                                                                                                                                                                  CHE
                                                                                                              PHL                        MEX
                                                                                                                                                       MYS
                                                                                                                                                         TWN SWE
                                                                                                                                                        MLT
                                                                                                                                                                SGP   USA
                                                                                                                                                  HUN KOR      GBR
                                                                                                                                           CRI                 FRA
                                                                                                                                                              FIN
                                                                                                                                                    CZE
                                                                                                                                               SVK       SVNCYP AUT
                                                                                                                                                          ESP    CAN
                                                                                                                                          PAN                ITANLD
                                                                                                                                        THA                      DNKNOR
                                                                                                                          CHN               POL                        QAT
                                                                                                                                                           ISR
                                                                                                                                                       PRT       HKG
                                                                                                                                                        TTO
                              9.4




                                                                                                                     BRA ZAF
                                                                       UGA SEN                                 JORUKR
                                                                                                                 IDN         RUS
                                                                                                                                                                                        AUS
                                                                                                                 COL
                                                                                                                 ROM BGR LTU
                                                                                                                TUR               OMN
                                                                                                                                  GRC
                                                                                                     IND MAR      VEN
                                                                                                                   IRNTUN     CHL
                                                                                                        AZE                                                                         ISL
                                                                    TZA    BEN                               EGY           ARG
                                                                         KEN
                                                                       YEM                                                                                                        KWT
                                                                                                            ARM                                                                 NZL
                                                                                                                 DZA BWA LVA
                                                                                                   MDA     ECU
                                                                          MOZ
                9.2




                                                                        NGA
                                                                                                                  PER                          URY
                                                                                                                GTM SLV
                                                              ETH               NPL
                                                                                GHA
                                                                                                       BOL          LKA                          GAB
                                                                                          CIV
                                                               MWI                                 CMR                                                               MUS
                                                                                                                                                                                           MAC
                                                                                             HND
                                                                                               PAK
   9




                                                                                 MNG       BGD


                                                          6             7                 8           9                                                                         10                       11
                                                                                 Log Per capita GDP PPP I$2000



                                                                                                                     All
Manufacturing Export Sophistication Index (in logs)




                                                                                                                                                                                 JPN   IRL
                                                                                                                                                                                  JPN
                                                                                                                                                                                  JPN CHE
                                                                                                                                                                                      IRL
                                                                                                                                                                                    SGP    USA
                                                                                                                         PHL
                                                                                                                           PHL                 MEX                        TWN
                                                                                                                                                                          MLT      SWE
                                                                                                                                                                                     SGP
                                                                                                                                                                                   GBR CHE USA
                                                                                                                                                                                           USA
                                                                                                                          PHL                   MEX
                                                                                                                                                  CRI HUN
                                                                                                                                                MEX         HUN
                                                                                                                                                           HUN    MYS
                                                                                                                                                                 MYS
                                                                                                                                                                MYS
                                                                                                                                                                CZE
                                                                                                                                                                       KOR
                                                                                                                                                                      KOR TWN
                                                                                                                                                                          MLT
                                                                                                                                                                         TWN
                                                                                                                                                                          MLT
                                                                                                                                                                          TWN CYP   IRL
                                                                                                                                                                                   SWE
                                                                                                                                                                                 FIN
                                                                                                                                                                                   GBR
                                                                                                                                                                                   FRA
                                                                                                                                                                                  SWE
                                                                                                                                                                                  FIN
                                                                                                                                                                                 FIN
                                                                                                                                                                                  GBR
                                                                                                                                                                                       SGP
                                                                                                                                                                                       CHE USA
                                         9.5




                                                                                                                         PHL   PAN                       HUN
                                                                                                                                                        SVK    CZE KOR    MLT
                                                                                                                                                                           SVN     IRL
                                                                                                                                                                                 JPN
                                                                                                                                                                               CYPJPN
                                                                                                                                                                                  GBRCAN
                                                                                                                                                                                     AUT
                                                                                                                                                                                     SGP
                                                                                                                                                                                   FRACHE         QAT
                                                                                                                             PHL                PAN
                                                                                                                                                PAN
                                                                                                                                                 CRI          CZE KOR   MLT ESP
                                                                                                                                                                          SVN  FIN
                                                                                                                                                                              CYPJPN
                                                                                                                                                                                   FRA
                                                                                                                                                                                 SWE
                                                                                                                                                                                 ITA AUT
                                                                                                                                                                                      SGP
                                                                                                                                                                                    CAN
                                                                                                                                                                                    NLD
                                                                                                                                                                                    SGP IRL
                                                                                                                                                                                       CHEUSA
                                                                                                                            JOR   CHN         THA
                                                                                                                                               MEX
                                                                                                                                                MEX
                                                                                                                                                 CRI
                                                                                                                                                   POLSVK     MYS
                                                                                                                                                             CZE         SVN
                                                                                                                                                                        TWNESP
                                                                                                                                                                          ESP   JPN
                                                                                                                                                                               ISR SGP
                                                                                                                                                                                 JPN DNK
                                                                                                                                                                                    SGP
                                                                                                                                                                                     AUT
                                                                                                                                                                                    NLD     USA
                                                                                                                                                                                          NOR
                                                                                                                                                                                            QAT
                                                                                                                        PHL
                                                                                                                         PHL                 THA
                                                                                                                                            THA
                                                                                                                                           THAMEX CRI
                                                                                                                                                  POL  HUN
                                                                                                                                                     SVK     HUN
                                                                                                                                                               KOR    MLTMLT
                                                                                                                                                                        SVN   FIN
                                                                                                                                                                            TWN
                                                                                                                                                                             ISR
                                                                                                                                                                            FIN
                                                                                                                                                                            CYP  ITA
                                                                                                                                                                                SWE
                                                                                                                                                                                 GBR
                                                                                                                                                                                 IRL
                                                                                                                                                                               SWE
                                                                                                                                                                                 ITA CHE
                                                                                                                                                                                    SWE
                                                                                                                                                                                    NLD
                                                                                                                                                                                  SGP
                                                                                                                                                                                JPN  DNK
                                                                                                                                                                                     DNK  USA
                                                                                                                                                                                         USA
                                                                                                                                                                                          NOR
                                                                                                                                CHN MEX         PAN
                                                                                                                                                  POL
                                                                                                                                                 CRI SVK     MYS
                                                                                                                                                             MYS CZE    KOR
                                                                                                                                                                       PRT
                                                                                                                                                                      TWN
                                                                                                                                                                    MLT
                                                                                                                                                                    TWN   FIN    FRA
                                                                                                                                                                               JPN
                                                                                                                                                                                ITA
                                                                                                                                                                                GBR
                                                                                                                                                                              SWE
                                                                                                                                                                                ISR  HKG
                                                                                                                                                                                   CAN
                                                                                                                                                                                    GBR
                                                                                                                                                                                   AUT
                                                                                                                                                                                    FRAUSANOR
                                                                                                                                                                                        USA       QAT
                                                                                                                            JOR
                                                                                                                            JORCHN               CRI
                                                                                                                                                  POL HUN    CZE        TTO
                                                                                                                                                                       PRT  SVN
                                                                                                                                                                           CYP
                                                                                                                                                                          ESP
                                                                                                                                                                          FIN ISR
                                                                                                                                                                               GBR
                                                                                                                                                                             SWE     DNK
                                                                                                                                                                                     CHE
                                                                                                                                                                                    CHE
                                                                                                                                                                                    HKG
                                                                                                                                                                                  CAN
                                                                                                                                                                                    CHEUSA
                                                                                                                        PHL  CHNCHN
                                                                                                                            JOR             MEX
                                                                                                                                              PAN
                                                                                                                                            MEX
                                                                                                                                           THA
                                                                                                                                             BRAPAN SVK
                                                                                                                                                     HUN    MYS
                                                                                                                                                             KOR MLT
                                                                                                                                                               KOR MLT
                                                                                                                                                                   TWN PRT
                                                                                                                                                                       SVN
                                                                                                                                                                       PRT
                                                                                                                                                                        ESP   IRL
                                                                                                                                                                            IRL
                                                                                                                                                                          FIN
                                                                                                                                                                            SWE  FRA
                                                                                                                                                                               JPN
                                                                                                                                                                             SWE
                                                                                                                                                                             ESP
                                                                                                                                                                             GBR CAN
                                                                                                                                                                               JPNAUT
                                                                                                                                                                                SGP
                                                                                                                                                                               ITA  USA
                                                                                                                                                                                   AUT
                                                                                                                                                                                   NLDAUT
                                                                                                                                                                                    CHE  NOR
                                                                                                                                                                                       SGPQAT
                                                                                          UGA   SEN
                                                                                                 SEN                         JOR
                                                                                                                           JORIDN
                                                                                                                                              MEX
                                                                                                                                             BRA
                                                                                                                                             BRA
                                                                                                                                            THA
                                                                                                                                          THA
                                                                                                                                           UKR PAN
                                                                                                                                             PAN
                                                                                                                                             MEX
                                                                                                                                                  ZAF
                                                                                                                                                  ZAFPOL
                                                                                                                                                   SVK  OMNMYS
                                                                                                                                                         SVK
                                                                                                                                                            CZE
                                                                                                                                                            CZE
                                                                                                                                                                 TWN
                                                                                                                                                                MLT
                                                                                                                                                              TTO
                                                                                                                                                                     SVNFIN
                                                                                                                                                                      ESP
                                                                                                                                                                    SVN
                                                                                                                                                                            FIN
                                                                                                                                                                           SGP
                                                                                                                                                                          GBR
                                                                                                                                                                            GBR
                                                                                                                                                                           JPN
                                                                                                                                                                                FRA
                                                                                                                                                                               CYP
                                                                                                                                                                              GBR
                                                                                                                                                                              ISR
                                                                                                                                                                             FIN
                                                                                                                                                                             JPNJPN
                                                                                                                                                                                 ITA
                                                                                                                                                                                 AUT
                                                                                                                                                                               CAN
                                                                                                                                                                             SWE
                                                                                                                                                                               ITA
                                                                                                                                                                              ISR
                                                                                                                                                                             CAN  NLD
                                                                                                                                                                                 AUT
                                                                                                                                                                                CAN
                                                                                                                                                                               FRA
                                                                                                                                                                              ITA
                                                                                                                                                                                   FIN
                                                                                                                                                                                   HKG
                                                                                                                                                                                 NLD USA
                                                                                                                                                                                      CAN
                                                                                                                                                                                    DNK
                                                                                                                                                                                    CHE
                                                                                                                                                                                      DNK
                                                                                                                                                                                     AUS
                                                                                                                                                                                     USA
                                                                                                                                                                                         QAT
                                                                                                                                                                                         NOR
                                                                                                                                                                                          QAT
                                                                                                                                                                                         NOR    QAT
                                                                                                                                                                                              QAT
                                                                                                                                                                                                QAT
                                                                                                                                                                                                   QAT
                                                                                         MOZ                            PHL JOR
                                                                                                                          CHN           UKR
                                                                                                                                      UKR      PAN
                                                                                                                                             THA ZAFMYS
                                                                                                                                                 POL      RUS KOR
                                                                                                                                                             KOR
                                                                                                                                                               TWN  ESP
                                                                                                                                                                    OMN   CYP
                                                                                                                                                                        IRL
                                                                                                                                                                      IRL  SWEFRA
                                                                                                                                                                            SWEFRA
                                                                                                                                                                              CAN
                                                                                                                                                                             ISR
                                                                                                                                                                              FRAAUTUSA
                                                                                                                                                                                    DNK
                                                                                                                                                                                    CHEHKG
                                                                                                                                                                                     USA
                                                                                                                                                                                     CHE
                                                                                                                            IDN
                                                                                                                             IDN
                                                                                                                            IDN   UKR     COL
                                                                                                                                         COL
                                                                                                                                       TUR
                                                                                                                                        ROM  MEX
                                                                                                                                            MEX
                                                                                                                                            THA  ZAF
                                                                                                                                                  SVK  RUS
                                                                                                                                                        GAB
                                                                                                                                                         LTUCZE CYP
                                                                                                                                                                  SVN
                                                                                                                                                                TTOESP
                                                                                                                                                                   OMN
                                                                                                                                                                  GRC
                                                                                                                                                                  JPNESP
                                                                                                                                                                       FIN
                                                                                                                                                                     PRT
                                                                                                                                                                      CYP
                                                                                                                                                                       CYPSGP
                                                                                                                                                                         JPN
                                                                                                                                                                       FIN
                                                                                                                                                                        CYPGBR
                                                                                                                                                                           FIN USA
                                                                                                                                                                             ITA
                                                                                                                                                                             SGP
                                                                                                                                                                            SWE
                                                                                                                                                                           GBR  AUT
                                                                                                                                                                               CAN
                                                                                                                                                                              ISR  DNK
                                                                                                                                                                                     HKG
                                                                                                                                                                                     AUS
                                                                                                                                                                                    USA
                                                                                                                                                                                   HKG
                                                                                                                                                                                    CHENOR
                                                                                                                        CHN
                                                                                                                      IND    MARTUR       PAN
                                                                                                                                            PAN
                                                                                                                                          VENPAN
                                                                                                                                             BRACRI
                                                                                                                                                POL
                                                                                                                                                BGR  RUS
                                                                                                                                                    HUN     MLT
                                                                                                                                                           MLT MLTIRL
                                                                                                                                                                   ESP
                                                                                                                                                                 SVN
                                                                                                                                                                  GAB   SGP
                                                                                                                                                                       PRT
                                                                                                                                                                       SWE
                                                                                                                                                                        JPN
                                                                                                                                                                         CANITA
                                                                                                                                                                          FIN
                                                                                                                                                                          GBR   NLD
                                                                                                                                                                               NLD
                                                                                                                                                                              FRA
                                                                                                                                                                              CAN  USA
                                                                                                                                                                                   DNK
                                                                                                                                                                                    AUS
                                                                                                                                                                                   AUS
                                                                                                                                                                                  DNK
                                                                                                                                                                                   CHENOR
                                                                                                                                                                                    NLD
                                                                                                                                                                                    HKG   QAT     QAT
                                                                                                 SEN                    PHL
                                                                                                                       CHNJOR
                                                                                                                            ARM             MEX
                                                                                                                                          COLMEX
                                                                                                                                           IRN
                                                                                                                                         PANVENPOL
                                                                                                                                               BGR
                                                                                                                                               TUN RUS
                                                                                                                                                  SVK
                                                                                                                                                    VEN
                                                                                                                                                   HUN  TTO
                                                                                                                                                         CHL TWN
                                                                                                                                                            CZE
                                                                                                                                                           CHL
                                                                                                                                                           KOR
                                                                                                                                                          TWN  IRL
                                                                                                                                                             CYP
                                                                                                                                                             JPNTTO
                                                                                                                                                              MLT ESP
                                                                                                                                                                 GRC SGP
                                                                                                                                                                     OMN
                                                                                                                                                                    PRT
                                                                                                                                                                   OMN FINGBRFRA
                                                                                                                                                                           SWE
                                                                                                                                                                             ISR
                                                                                                                                                                             FRA
                                                                                                                                                                           ITA AUT
                                                                                                                                                                             CANAUT
                                                                                                                                                                               NLD
                                                                                                                                                                              FRA USA
                                                                                                                                                                                AUT NOR
                                                                                       TZA                           ARM
                                                                                                                   IND  ARM
                                                                                                                          AZE
                                                                                                                         KGZ
                                                                                                                           JOR
                                                                                                                          MAR
                                                                                                                           MAR
                                                                                                                          IDN
                                                                                                                            MAR   PAN
                                                                                                                                UKR
                                                                                                                                 UKR
                                                                                                                                 EGY ROM
                                                                                                                                    TUR
                                                                                                                                   ROM ROM MEX
                                                                                                                                             BRA
                                                                                                                                             PANZAF
                                                                                                                                                SVK
                                                                                                                                              BGRRUS
                                                                                                                                                RUS   ARG
                                                                                                                                                      MYS
                                                                                                                                                      LTU
                                                                                                                                                     ARGTWN TWN
                                                                                                                                                          CHL
                                                                                                                                                          MLT IRL
                                                                                                                                                               SVNGBR
                                                                                                                                                                IRL
                                                                                                                                                               GRC ESP
                                                                                                                                                                   CYP
                                                                                                                                                                   PRT
                                                                                                                                                                 CYP
                                                                                                                                                                 ESP    FIN
                                                                                                                                                                       FIN
                                                                                                                                                                      FRA SWE
                                                                                                                                                                           ITA
                                                                                                                                                                           FRA
                                                                                                                                                                         SWE
                                                                                                                                                                        GBR   KWT
                                                                                                                                                                              AUT
                                                                                                                                                                            ITA
                                                                                                                                                                              GAB
                                                                                                                                                                              NLDUSA
                                                                                                                                                                                   CHE
                                                                                                                                                                                 DNK
                                                                                                                                                                                  NOR
                                                                                                                                                                                  USAISL
                                                                                                                                                                                     QAT
                                                                                                                                                                                   AUS   QAT QAT
                                                                                          MOZ
                                                                                        UGA
                                                                                          YEM
                                                                                         UGAKEN
                                                                                          UGA   BEN  SEN                KGZJOR
                                                                                                                         AZE      JORJOR   THA
                                                                                                                                           MEXPOL
                                                                                                                                              BGR   ARGMLT
                                                                                                                                                       OMN
                                                                                                                                                     LTUARGCZE
                                                                                                                                                          CHL
                                                                                                                                                           TTOGRC
                                                                                                                                                                CYP
                                                                                                                                                                 OMN JPN
                                                                                                                                                                   OMN
                                                                                                                                                                   SGP SWE
                                                                                                                                                                       JPN  CAN
                                                                                                                                                                           ISR
                                                                                                                                                                           ITAUSA
                                                                                                                                                                            AUT
                                                                                                                                                                          ITA
                                                                                                                                                                          FRA  DNK
                                                                                                                                                                                CHE
                                                                                                                                                                              USA
                                                                                                                                                                               DNK
                                                                                                                                                                              NLDNORISL NOR
                                                                                                                                                                                   KWT
                                                                                                                                                                                    HKG
                                                                                          MOZ
                                                                                         UGA
                                                                                          YEMKEN   SEN
                                                                                                  SEN               CHN
                                                                                                                    IND
                                                                                                                   ARM  JOR
                                                                                                                         JOR
                                                                                                                         KGZ
                                                                                                                        JOR
                                                                                                                       ARM
                                                                                                                            AZE
                                                                                                                          MAR
                                                                                                                          IDN JOR
                                                                                                                               ARM JOR
                                                                                                                                 ARM
                                                                                                                                UKR
                                                                                                                                 UKR JOR COL
                                                                                                                                       TUR PAN
                                                                                                                                           IRN
                                                                                                                                          COL
                                                                                                                                         DZA  TUN
                                                                                                                                            MEX
                                                                                                                                            BGR
                                                                                                                                               ZAF
                                                                                                                                             BRASVK
                                                                                                                                                BWA
                                                                                                                                              TUN
                                                                                                                                               VEN MYS
                                                                                                                                                     OMN
                                                                                                                                                   LTU
                                                                                                                                                   HUNTTO
                                                                                                                                                       TTO
                                                                                                                                                       TTO
                                                                                                                                                      TWN
                                                                                                                                                     SGPCHL
                                                                                                                                                        LVA IRLESP
                                                                                                                                                              JPN
                                                                                                                                                             OMNIRL
                                                                                                                                                                 PRT
                                                                                                                                                               GAB
                                                                                                                                                                  FIN
                                                                                                                                                                  OMN
                                                                                                                                                                PRT
                                                                                                                                                                GAB
                                                                                                                                                                  GBR
                                                                                                                                                                   OMN
                                                                                                                                                                   JPN
                                                                                                                                                                    GBR
                                                                                                                                                                    FIN
                                                                                                                                                                       SWE
                                                                                                                                                                       GBR
                                                                                                                                                                      SWE
                                                                                                                                                                      FIN
                                                                                                                                                                      SWE
                                                                                                                                                                      FIN
                                                                                                                                                                          CAN
                                                                                                                                                                           CAN
                                                                                                                                                                         CAN NLD
                                                                                                                                                                            NZL
                                                                                                                                                                          FRA    NOR
                                                                                                                                                                               USA
                                                                                                                                                                               NZL
                                                                                                                                                                                HKG
                                                                                                                                                                               DNK
                                                                                                                                                                                DNKNOR
                                                                                                                                                                                  AUS
                                                                                                                                                                                   CHE
                                                                                                                                                                                 QAT
                                                                                                                                                                               CHE
                                                                                                                                                                                NOR
                                                                                                                                                                               HKG  ISLQAT
                                                                                                                                                                                       QAT
                                                                                                                                                                                       QAT  QAT
                                                                                   ETH
                                                                                   ETHTZAMOZ
                                                                                          UGA KEN MOZ MDA
                                                                                                            AZE
                                                                                                              MDA
                                                                                                              AZE
                                                                                                                  CHN
                                                                                                                  IND
                                                                                                                  MDA
                                                                                                                   MDA
                                                                                                                 MDA   PHL
                                                                                                                       KGZ
                                                                                                                       AZE AZE
                                                                                                                           MAR
                                                                                                                               ECU
                                                                                                                                 EGY
                                                                                                                                   ROM
                                                                                                                                   JOR
                                                                                                                                     DZA
                                                                                                                                          COL
                                                                                                                                         THAPOL
                                                                                                                                          IRNBRA
                                                                                                                                           BGR
                                                                                                                                             TUN
                                                                                                                                           PAN
                                                                                                                                           POLVEN
                                                                                                                                            BGR
                                                                                                                                          PAN
                                                                                                                                                 RUS
                                                                                                                                                BGR
                                                                                                                                               ZAF
                                                                                                                                              VEN
                                                                                                                                               VEN
                                                                                                                                             IRN
                                                                                                                                               RUS
                                                                                                                                               CRI
                                                                                                                                             VEN
                                                                                                                                              SVK LTU
                                                                                                                                                  LTU
                                                                                                                                                     MYS
                                                                                                                                                     TWN
                                                                                                                                                   OMN
                                                                                                                                                   ZAF   KOR
                                                                                                                                                       TTO
                                                                                                                                                      OMN
                                                                                                                                                      KOR
                                                                                                                                                      OMN
                                                                                                                                                      LVAARG
                                                                                                                                                         CHL
                                                                                                                                                       TTO
                                                                                                                                                          ARGESP
                                                                                                                                                             SVN
                                                                                                                                                           IRL
                                                                                                                                                            SVN
                                                                                                                                                           ESP
                                                                                                                                                           TTO
                                                                                                                                                            OMN
                                                                                                                                                            ESP
                                                                                                                                                           CZE
                                                                                                                                                          IRL
                                                                                                                                                                SGP
                                                                                                                                                              GABGBR
                                                                                                                                                                JPN
                                                                                                                                                                  OMN
                                                                                                                                                                   JPN
                                                                                                                                                                 OMN
                                                                                                                                                                 GBR
                                                                                                                                                                     GBR
                                                                                                                                                                    FINISR
                                                                                                                                                                     SWE
                                                                                                                                                                   ITA
                                                                                                                                                                         ITA
                                                                                                                                                                       SWECAN
                                                                                                                                                                        FRA
                                                                                                                                                                       FRA
                                                                                                                                                                        NLD
                                                                                                                                                                           AUT
                                                                                                                                                                            NLD
                                                                                                                                                                            USA
                                                                                                                                                                          ISR
                                                                                                                                                                           USA
                                                                                                                                                                          NLD
                                                                                                                                                                               NZL
                                                                                                                                                                              NLD
                                                                                                                                                                               USA
                                                                                                                                                                              USA
                                                                                                                                                                             NZL AUS
                                                                                                                                                                                KWT
                                                                                                                                                                               DNK
                                                                                                                                                                                NOR
                                                                                                                                                                               DNK
                                                                                                                                                                                   QAT
                                                                                                                                                                                  CHE
                                                                                                                                                                                  CHE
                                                                                                                                                                                  QATISL
                                                                                                                                                                                   HKG
                                                                                                                                                                                 CHE
                                                                                                                                                                                  NOR
                                                                                                                                                                                         QAT
                                                                                                                                                                                       ISL  KWT
                                                                                       TZA
                                                                                       YEM
                                                                                     TZA YEM
                                                                                        YEM
                                                                                              KEN
                                                                                            NGA                  AZE
                                                                                                                  IND
                                                                                                                CHNARM
                                                                                                                         MAR
                                                                                                                       KGZSLV
                                                                                                                             IDNEGY
                                                                                                                               ECU
                                                                                                                              IDN
                                                                                                                                JOR
                                                                                                                               ECUROM
                                                                                                                                EGY
                                                                                                                                   ROM
                                                                                                                                   ROM
                                                                                                                                     ROM
                                                                                                                                      TUR
                                                                                                                                    THA
                                                                                                                                   UKR
                                                                                                                                    DZA
                                                                                                                                   ROM
                                                                                                                                       DZA
                                                                                                                                      DZATUR
                                                                                                                                         COL
                                                                                                                                       THAIRN
                                                                                                                                        UKR
                                                                                                                                             BRA
                                                                                                                                           PAN
                                                                                                                                             MEX
                                                                                                                                           POLVEN
                                                                                                                                            BRA
                                                                                                                                            TUN
                                                                                                                                           POL
                                                                                                                                           ROM VEN
                                                                                                                                               BWA
                                                                                                                                               VEN
                                                                                                                                             MEX
                                                                                                                                              BGR
                                                                                                                                               ZAF
                                                                                                                                             BWA
                                                                                                                                                  MYS
                                                                                                                                                   HUN
                                                                                                                                                   VEN
                                                                                                                                                 LTUKOR
                                                                                                                                                    LVA
                                                                                                                                                  TTO
                                                                                                                                                   VEN
                                                                                                                                                   VEN
                                                                                                                                                  HUN
                                                                                                                                                   TWN
                                                                                                                                                 KORTTO
                                                                                                                                                         ARG
                                                                                                                                                       KOR
                                                                                                                                                      URY
                                                                                                                                                       OMN
                                                                                                                                                     SGPCHL
                                                                                                                                                           TTO
                                                                                                                                                         IRL
                                                                                                                                                             GAB
                                                                                                                                                             GAB
                                                                                                                                                              GAB
                                                                                                                                                            OMN
                                                                                                                                                             GRC
                                                                                                                                                           GABPRT
                                                                                                                                                              GAB
                                                                                                                                                             GAB
                                                                                                                                                             GAB
                                                                                                                                                            GAB
                                                                                                                                                             PRT
                                                                                                                                                             OMN
                                                                                                                                                            CYP
                                                                                                                                                                FIN
                                                                                                                                                                GBR
                                                                                                                                                              PRT GBR
                                                                                                                                                                    JPN
                                                                                                                                                                   FRA
                                                                                                                                                                  CYP
                                                                                                                                                                PRTGBR
                                                                                                                                                                    ITA
                                                                                                                                                                        ITA
                                                                                                                                                                        CAN
                                                                                                                                                                       FRA
                                                                                                                                                                       NOR
                                                                                                                                                                      ISR
                                                                                                                                                                      ITA
                                                                                                                                                                     NOR
                                                                                                                                                                     FRA
                                                                                                                                                                       ITA
                                                                                                                                                                           AUT
                                                                                                                                                                         NOR
                                                                                                                                                                         CANNZL
                                                                                                                                                                          AUT
                                                                                                                                                                         ISR
                                                                                                                                                                          AUT
                                                                                                                                                                          NLD
                                                                                                                                                                             HKG
                                                                                                                                                                            HKGNOR
                                                                                                                                                                             NOR
                                                                                                                                                                                 CHE
                                                                                                                                                                                  HKG
                                                                                                                                                                                  KWT
                                                                                                                                                                                 CHE
                                                                                                                                                                                AUS
                                                                                                                                                                                  KWT
                                                                                                                                                                                     AUS
                                                                                                                                                                                   ISL
                                                                                                                                                                                    QAT
                                                                                                                                                                                        KWT
                                                                                                                                                                                      QAT
                                                                                                                                                                                     KWT
                                                                                                                                                                                      GAB
                                                                                                                                                                                        KWT
                                                                                                                                                                                      KWTKWT KWT
                                                                                                                                                                                            KWT
                                                                                                                                                                                          QAT
                                                                                 ETH  YEM
                                                                                     TZA YEM  KEN
                                                                                              MOZ
                                                                                              KEN SEN
                                                                                                  NPL      IDN  IND    PHL
                                                                                                                        JOR
                                                                                                                       PHL     PER
                                                                                                                                DZA
                                                                                                                                ECU    CYP
                                                                                                                                       TUR
                                                                                                                                      DZA
                                                                                                                                     DZA POL
                                                                                                                                        ROM
                                                                                                                                        POL
                                                                                                                                      DZA   BRA
                                                                                                                                           TUNZAF
                                                                                                                                             BGR
                                                                                                                                              CRI
                                                                                                                                            POL
                                                                                                                                            BRA
                                                                                                                                           POL  KOR
                                                                                                                                               BWA
                                                                                                                                                 MYS
                                                                                                                                                LTU
                                                                                                                                                LVA
                                                                                                                                                VENTTO
                                                                                                                                                   TTO
                                                                                                                                                   LVA
                                                                                                                                                  URY
                                                                                                                                                   TTO URY
                                                                                                                                                      HUN
                                                                                                                                                     HUN IRL
                                                                                                                                                        IRL ESP
                                                                                                                                                            PRT
                                                                                                                                                           GAB
                                                                                                                                                            GRC
                                                                                                                                                            GRC
                                                                                                                                                           ESP
                                                                                                                                                           ESP
                                                                                                                                                          SGP   ITA
                                                                                                                                                                SGP
                                                                                                                                                               ITA
                                                                                                                                                                GBR
                                                                                                                                                               FIN  JPN
                                                                                                                                                                    ITA
                                                                                                                                                                    FRA
                                                                                                                                                                    GRCAUT
                                                                                                                                                                       NLD
                                                                                                                                                                      NLD NOR
                                                                                                                                                                        FRA
                                                                                                                                                                          NZL
                                                                                                                                                                        ISR
                                                                                                                                                                        NLD
                                                                                                                                                                        AUT   DNK
                                                                                                                                                                               KWTKWT
                                                                                                                                                                                  ISL
                                                                                                                                                                                AUS
                                                                                   ETH
                                                                                 ETH   UGAYEM
                                                                                         YEM
                                                                                        UGA GHA
                                                                                            GHA               AZE
                                                                                                            MDA
                                                                                                            CHN        PHL GTM
                                                                                                                             IDN
                                                                                                                           MAR
                                                                                                                           GTM ROM
                                                                                                                                 ROM
                                                                                                                               TUN
                                                                                                                               ECUSLV
                                                                                                                                ECU
                                                                                                                                  THA   COL
                                                                                                                                      ROMIRN
                                                                                                                                       TURTUN
                                                                                                                                           ROM
                                                                                                                                          POL BRA
                                                                                                                                              LVA
                                                                                                                                            MEX
                                                                                                                                              KOR
                                                                                                                                              ZAF
                                                                                                                                              VEN
                                                                                                                                             LTU  HUN
                                                                                                                                                  RUS
                                                                                                                                                   TTO
                                                                                                                                                 RUS
                                                                                                                                                 TWN
                                                                                                                                                LVA     URY
                                                                                                                                                      MLT
                                                                                                                                                       ARG
                                                                                                                                                      CHL  ESP
                                                                                                                                                           PRT
                                                                                                                                                          TTO TTO
                                                                                                                                                              OMN
                                                                                                                                                             TTO
                                                                                                                                                           OMN
                                                                                                                                                            GAB OMN
                                                                                                                                                                 SGP
                                                                                                                                                                 ISR
                                                                                                                                                                 ITAISRNORNLD
                                                                                                                                                                          NOR
                                                                                                                                                                          NZL
                                                                                                                                                                         AUT
                                                                                                                                                                          KWT  AUS           KWT
                                                                               ETHETH
                                                                                   MWI    MOZ
                                                                                          NGA
                                                                                          YEMMOZ
                                                                                              BEN
                                                                                            MNG   NPL
                                                                                                  GHA     CHN
                                                                                                        CHN   IND  MDA  MARGTM
                                                                                                                           GTM
                                                                                                                           GTM PER
                                                                                                                                EGY
                                                                                                                              PER
                                                                                                                                JOR
                                                                                                                               JOR  ROM
                                                                                                                                  TUN
                                                                                                                                ROM  TUR
                                                                                                                                   DZA  DZA
                                                                                                                                       COL
                                                                                                                                       DZA
                                                                                                                                       DZA
                                                                                                                                        IRN
                                                                                                                                      IRN PAN
                                                                                                                                          POL
                                                                                                                                         TUN BRA
                                                                                                                                           ROMTWN
                                                                                                                                            MEX
                                                                                                                                          PAN
                                                                                                                                          PAN   MYS
                                                                                                                                               LTU
                                                                                                                                              CRI
                                                                                                                                              TWN
                                                                                                                                               MEX CHL
                                                                                                                                                 LVA
                                                                                                                                                 BGR   SGP
                                                                                                                                                      HUN
                                                                                                                                                      GAB
                                                                                                                                                      ARG
                                                                                                                                                      TTO  ESP
                                                                                                                                                         OMN
                                                                                                                                                           GAB
                                                                                                                                                         URYCHLPRT
                                                                                                                                                             OMN
                                                                                                                                                             GAB ISR
                                                                                                                                                               FIN
                                                                                                                                                                 ISR
                                                                                                                                                                 GABITA
                                                                                                                                                                    AUTNLD
                                                                                                                                                                     ISR   NOR
                                                                                                                                                                            AUS
                                                                                                                                                                          KWT
                                                                                                                                                                        AUT
                                                                                                                                                                        NLD
                                                                                                                                                                          NZL
                                                                                                                                                                          KWT
                                                                                                                                                                        NLD   DNKISL
                                                                                   UGA   NGA
                                                                                        YEM
                                                                                          NGA
                                                                                         NGA
                                                                                       NGA
                                                                                        MOZ
                                                                                          NGA   SENNPLCHN      MDA   BOL
                                                                                                                       PHL MAR
                                                                                                                           MAR
                                                                                                                          GTM
                                                                                                                         MAR
                                                                                                                         GTM
                                                                                                                         MAR  PER
                                                                                                                              TUN
                                                                                                                                ROM
                                                                                                                               LKA
                                                                                                                                SLV
                                                                                                                               EGY
                                                                                                                              ROM
                                                                                                                              PER   DZA
                                                                                                                                    TUN
                                                                                                                                  SLV
                                                                                                                                   TUN
                                                                                                                                  TUN
                                                                                                                                  SLV TUNPOL
                                                                                                                                         DZA
                                                                                                                                        PANROMBGR
                                                                                                                                              BRA
                                                                                                                                              MEX
                                                                                                                                            KOR
                                                                                                                                             MEXTUN
                                                                                                                                               LTU
                                                                                                                                               VEN
                                                                                                                                             LVAVENRUS
                                                                                                                                                  VEN
                                                                                                                                                 VEN
                                                                                                                                                 IRNGAB
                                                                                                                                                   MLT
                                                                                                                                                     MLT
                                                                                                                                                     TTO
                                                                                                                                                     CHL
                                                                                                                                                       IRL
                                                                                                                                                     URY
                                                                                                                                                     RUS
                                                                                                                                                     HUNTTO
                                                                                                                                                        IRL
                                                                                                                                                       CYP ESP
                                                                                                                                                           ESP
                                                                                                                                                           GRCGAB
                                                                                                                                                             SGPISR
                                                                                                                                                               SGP HKG
                                                                                                                                                                     ISR
                                                                                                                                                                       NLDHKGAUS
                                                                                                                                                                            AUS
                                                                                                                                                                             DNK
                                                                                                                                                                           DNK  NZL
                                                                                                                                                                                KWT    KWT
                                                                                 ETHTZA
                                                                                   MWI   NGA
                                                                                       UGAMOZ
                                                                                          MOZ
                                                                                         NGA
                                                                                         MOZ    GHA
                                                                                              KEN GHAIDN     IND
                                                                                                            CIV
                                                                                                             CIV
                                                                                                             CIV
                                                                                                            CIV   KGZ
                                                                                                                  MDABOLEGYIDN
                                                                                                                           SLV
                                                                                                                           SLV
                                                                                                                          EGY
                                                                                                                         EGY  TUN
                                                                                                                               JOR
                                                                                                                              SLV
                                                                                                                             EGY
                                                                                                                               THA
                                                                                                                             EGYECU   ROM
                                                                                                                                      COL
                                                                                                                                       TUN
                                                                                                                                      DZA
                                                                                                                                      COL
                                                                                                                                       DZA
                                                                                                                                       ROM
                                                                                                                                        ROM
                                                                                                                                      TUN     CRI
                                                                                                                                              VEN
                                                                                                                                             LVA
                                                                                                                                            POL
                                                                                                                                           MEX
                                                                                                                                           ROM BGR
                                                                                                                                               ZAF
                                                                                                                                               ZAF
                                                                                                                                              UKR
                                                                                                                                             LVA    MLT
                                                                                                                                                      CYP
                                                                                                                                                     GAB
                                                                                                                                                      ARG
                                                                                                                                                     IRLIRL
                                                                                                                                                         PRT
                                                                                                                                                       ARG  GAB
                                                                                                                                                            SGP
                                                                                                                                                          CYP    ISR
                                                                                                                                                               ISR  KWT
                                                                                                                                                                  ISR HKGNZL
                                                                                                                                                                          DNKCHE
                                                                                                                                                                              CHE
                                                                                                                                                                             AUS
                                                                                          NGA
                                                                                        YEM                      CMR    AZE      SLV
                                                                                                                                ECU
                                                                                                                               SLV TUR
                                                                                                                                   ROM TUNPOLBRA
                                                                                                                                              MYSCYP        GAB
                                                                                                                                                           GRC     AUT          ISL   QAT
                                                                             TZAETH
                                                                                 UGA
                                                                                    MWI
                                                                                      MOZ
                                                                                       YEM
                                                                                     MWI
                                                                                       MOZ
                                                                                          NGA
                                                                                          MOZ
                                                                                         NGA
                                                                                           BEN
                                                                                         MOZGHAKEN
                                                                                               SEN CHN CIV
                                                                                                  NPL       IND
                                                                                                             CIV
                                                                                                             CIV
                                                                                                                MDA
                                                                                                                  CMR
                                                                                                                  MDA
                                                                                                                    BOL
                                                                                                                  ARM PHL
                                                                                                                     BOL
                                                                                                                     PHL
                                                                                                                    BOL
                                                                                                                          GTM
                                                                                                                         EGY
                                                                                                                           TUN
                                                                                                                         GTM
                                                                                                                         MAR
                                                                                                                        MAR
                                                                                                                       MAR
                                                                                                                              LKA
                                                                                                                            TUNTUN
                                                                                                                               PER
                                                                                                                             JOR
                                                                                                                             THA
                                                                                                                             SLV
                                                                                                                           EGY  SLV
                                                                                                                              LKA
                                                                                                                              LKASLV
                                                                                                                                  TUN
                                                                                                                                ECU
                                                                                                                                  PAN
                                                                                                                                   COL
                                                                                                                                 TUNCOL
                                                                                                                                  DZA
                                                                                                                                      POL
                                                                                                                                       POL
                                                                                                                                     DZA
                                                                                                                                      TWN
                                                                                                                                      COL
                                                                                                                                      IRN
                                                                                                                                      COL
                                                                                                                                     COL
                                                                                                                                      DZA
                                                                                                                                          ROM
                                                                                                                                            TWN
                                                                                                                                          KOR
                                                                                                                                           ROM
                                                                                                                                          POL
                                                                                                                                          TWN
                                                                                                                                          CHL
                                                                                                                                        KOR
                                                                                                                                        POL
                                                                                                                                        TWN
                                                                                                                                          TWN
                                                                                                                                             CHL
                                                                                                                                             CRI
                                                                                                                                             CHL
                                                                                                                                           CRI
                                                                                                                                           BRA
                                                                                                                                               ZAF
                                                                                                                                               VEN
                                                                                                                                               CHL
                                                                                                                                              CYP
                                                                                                                                              ZAF
                                                                                                                                              ZAF
                                                                                                                                              VEN
                                                                                                                                                  BWA
                                                                                                                                                  CHL
                                                                                                                                                  MLT
                                                                                                                                                   ARG
                                                                                                                                                 MLTHUN
                                                                                                                                                  HUN
                                                                                                                                                 HUN PRT
                                                                                                                                                   URY
                                                                                                                                                       PRT
                                                                                                                                                       URY
                                                                                                                                                      PRT
                                                                                                                                                     ARG
                                                                                                                                                       ARG
                                                                                                                                                     PRT
                                                                                                                                                     URY
                                                                                                                                                   HUNPRT
                                                                                                                                                     PRT
                                                                                                                                                    PRT
                                                                                                                                                        IRL
                                                                                                                                                        IRLGRC
                                                                                                                                                           HKG
                                                                                                                                                          GRC
                                                                                                                                                           GRC
                                                                                                                                                              TTO
                                                                                                                                                             SGP
                                                                                                                                                              HKG
                                                                                                                                                               HKG
                                                                                                                                                                   HKG
                                                                                                                                                                 HKGMUS DNK
                                                                                                                                                                          DNK
                                                                                                                                                                        NZL
                                                                                                                                                                      NZL
                                                                                                                                                                             KWT
                                                                                                                                                                           AUS
                                                                                                                                                                           AUS
                                                                                                                                                                          DNK
                                                                                                                                                                          KWT
                                                                                                                                                                         DNK   ISL
                                                                                                                                                                              ISL
                                                                                                                                                                                  KWT
                                                                                                                                                                                  KWT   MAC
                                                                            TZAETHUGA   YEM
                                                                                       MOZ
                                                                                     MWI
                                                                                     MOZBEN
                                                                                      UGA NGA
                                                                                        NGA
                                                                                        NGA
                                                                                           GHAKEN
                                                                                             BEN
                                                                                              KEN  CHN
                                                                                                  MNG
                                                                                                 SEN
                                                                                                  SEN
                                                                                                  MNG
                                                                                                         INDCIV
                                                                                                             CMRCMR
                                                                                                              HND PAK
                                                                                                                CMR
                                                                                                               CMR
                                                                                                                    MDA
                                                                                                                   KGZ
                                                                                                                         EGY
                                                                                                                       EGY
                                                                                                                       MAR
                                                                                                                       MAR
                                                                                                                      PHL
                                                                                                                          IDN
                                                                                                                          LKA
                                                                                                                         GTM
                                                                                                                        JORLKA
                                                                                                                         MAR
                                                                                                                         KGZ
                                                                                                                           SLV DZA
                                                                                                                             LKA  TUR
                                                                                                                                TUN
                                                                                                                                 COL
                                                                                                                                   POL
                                                                                                                                 TUN
                                                                                                                                 TUR
                                                                                                                                  TUR
                                                                                                                                 KOR KOR
                                                                                                                                    TWN
                                                                                                                                     POL
                                                                                                                                      DZA
                                                                                                                                     IRN
                                                                                                                                           CRIMYS
                                                                                                                                            POL
                                                                                                                                            MLT
                                                                                                                                           CHL
                                                                                                                                         BRACRIZAF
                                                                                                                                              ZAF
                                                                                                                                               VEN
                                                                                                                                               CYPHUN
                                                                                                                                                  MLT
                                                                                                                                                   HUN
                                                                                                                                                  VEN
                                                                                                                                                 VEN
                                                                                                                                                ARG CYP
                                                                                                                                                     CYP
                                                                                                                                                   GAB
                                                                                                                                                  MLT
                                                                                                                                                 CYP
                                                                                                                                                 MLT
                                                                                                                                                 ARG
                                                                                                                                                      PRT
                                                                                                                                                      URY
                                                                                                                                                    IRLIRLGRC
                                                                                                                                                         GRC HKG
                                                                                                                                                            LTU AUT
                                                                                                                                                           GRC      MUS
                                                                                                                                                                   MUS CAN
                                                                                                                                                                       NZL
                                                                                                                                                                     NZL  DNK
                                                                                                                                                                          AUS
                                                                                                                                                                         AUS
                                                                                                                                                                          AUS
                                                                                                                                                                        AUS
                                                                                                                                                                       AUS  KWT     MAC
                                                                            TZA     UGA
                                                                                     MWI BEN
                                                                                          NGA   KEN
                                                                                                 NPL
                                                                                               BEN
                                                                                             BEN
                                                                                               KEN         IND
                                                                                                            LKA
                                                                                                          IND
                                                                                                          INDHNDPAK
                                                                                                              HND
                                                                                                               CMR BOLEGYLKA
                                                                                                                         GTM
                                                                                                                         IDN
                                                                                                                          THAPER
                                                                                                                           SLV    COL
                                                                                                                                  TUR
                                                                                                                                 KOR
                                                                                                                                KOR
                                                                                                                                 COL
                                                                                                                                  KOR
                                                                                                                                  COL
                                                                                                                                TUR
                                                                                                                                ECU      MLT
                                                                                                                                        CHL
                                                                                                                                         CHL  ZAF
                                                                                                                                               ZAF
                                                                                                                                              HUN
                                                                                                                                            CYPHUN PRT
                                                                                                                                                 CHL     HKG
                                                                                                                                                       GRC   MUS MUS  NZL
                                                                                                                                                                       AUS
                                                                                                                                                                        AUS   ISL MAC
                                                                                                                                                                                 MAC
                                                                                                                                                                                 MAC
                                                                            TZA      MOZ
                                                                                     MWI
                                                                                       NGA                IND
                                                                                                            IDN
                                                                                                             HND
                                                                                                              HND
                                                                                                             HND     PHL
                                                                                                                     MAR JOR    ECU
                                                                                                                                ECU TURDZA
                                                                                                                                        CHL
                                                                                                                                      IRN  IRN
                                                                                                                                           CRI MLT
                                                                                                                                              MYS
                                                                                                                                               ZAF   URY
                                                                                                                                                       GRC  MUS
                                                                                                                                                              MUS
                                                                                                                                                               ISR    CAN
                      9




                                                                             TZA
                                                                            TZA  MWI
                                                                                   UGA
                                                                                     MWI
                                                                                    CHN
                                                                                   ETH
                                                                                   CHNCHN BEN
                                                                                           KEN
                                                                                          NGA
                                                                                         NGA  KEN
                                                                                             KEN CHNIND
                                                                                                   SEN      CMR
                                                                                                            HND
                                                                                                           LKAHND
                                                                                                              HND  LKA
                                                                                                                 PAK
                                                                                                                 KGZEGYPHL
                                                                                                                     EGY PER
                                                                                                                        GTM
                                                                                                                        LKA
                                                                                                                       IDN
                                                                                                                         PER
                                                                                                                        GTM  KOR
                                                                                                                             SLV
                                                                                                                           PER
                                                                                                                             PERTUR
                                                                                                                                SLV
                                                                                                                                KOR
                                                                                                                                ECUPER
                                                                                                                                 COLIRN
                                                                                                                                  COL     BRA
                                                                                                                                          MUS
                                                                                                                                         BRABRA
                                                                                                                                           BRA  HUN
                                                                                                                                               ZAF
                                                                                                                                               ZAF ARG
                                                                                                                                                   URY
                                                                                                                                                  CYP       MUS       AUS
                                                                                                                                                                       NZL      MAC
                                                                                                                                                                               ISL
                                                                                                                                                                               ISL
                                                                                                                                                                              ISL MAC
                                                                                                                                                                                  MAC
                                                                            TZA MWI     NGA
                                                                                        NGA
                                                                                      UGA  GHA
                                                                                          BEN
                                                                                           MOZ
                                                                                             KENNPL
                                                                                               SEN
                                                                                              BGD
                                                                                              MNG
                                                                                              KEN
                                                                                              KEN SEN
                                                                                                 MNG     IND
                                                                                                         LKA
                                                                                                        IND IDN
                                                                                                            CIV
                                                                                                            LKA
                                                                                                            BGDEGY LKA
                                                                                                                 PAK MARIDN
                                                                                                                        GTM
                                                                                                                          SLV
                                                                                                                         PER
                                                                                                                        GTM
                                                                                                                         THA   SLV
                                                                                                                                COL
                                                                                                                                 PER
                                                                                                                                  COL
                                                                                                                                 TWN
                                                                                                                                PER
                                                                                                                                 PAN   IRN CRIZAF
                                                                                                                                              MYS   ARG   GRC
                                                                                                                                                          GRC
                                                                                                                                                         GRC
                                                                                                                                                           MUS       AUS        ISL
                                                                                                                                                                                ISL
                                                                             TZAMWI    MOZ
                                                                                     MWI
                                                                                   CHNNGA
                                                                                       CHN GHA
                                                                                           CHNCHN
                                                                                             KEN
                                                                                            BEN SENMNG
                                                                                                    MNG
                                                                                                   MNG
                                                                                                  IND       IDN
                                                                                                           IDNHND
                                                                                                             CIV EGY IDN
                                                                                                                   BOL
                                                                                                                   BOL
                                                                                                                  BOL
                                                                                                                 BOL
                                                                                                                  CMR
                                                                                                                 EGY
                                                                                                                 LKA    PHL
                                                                                                                      EGY KOR
                                                                                                                           SLV DZA
                                                                                                                               PER     CHL BRA  URYPRTHKG
                                                                                                                                                        GRC   ISR NZL        MAC  MAC MAC
                                                                                                                                                                                 MAC
                                                                             TZA  MWI
                                                                                 UGA MWINGAKEN
                                                                                          CHN
                                                                                            BEN
                                                                                            GHA
                                                                                            KEN
                                                                                          GHAMNG
                                                                                           BENMNG
                                                                                            KEN
                                                                                             KEN
                                                                                             NGA
                                                                                            GHA
                                                                                                   IND
                                                                                                 MNG
                                                                                                NPL  IND
                                                                                                   SEN
                                                                                                   MNGIND
                                                                                                    MNG
                                                                                                    MNGIND
                                                                                                       LKA
                                                                                                      BGD
                                                                                                            CMR
                                                                                                            LKA
                                                                                                          BGD   LKA
                                                                                                              IDN
                                                                                                            IDN
                                                                                                            CMRLKA
                                                                                                                 LKA
                                                                                                               HNDBOL
                                                                                                                  EGY
                                                                                                                 BOL
                                                                                                                 BOL
                                                                                                                 EGY
                                                                                                                       LKA
                                                                                                                      LKA
                                                                                                                    IDN
                                                                                                                      MAR
                                                                                                                     MAR
                                                                                                                     CMR
                                                                                                                     LKA
                                                                                                                          SLV
                                                                                                                        PHL     ECU
                                                                                                                                TUR
                                                                                                                               PER       MEX MYS
                                                                                                                                             CHL
                                                                                                                                            CHL
                                                                                                                                             ZAF
                                                                                                                                            MYS    HKG
                                                                                                                                                     MUS
                                                                                                                                                    ARG GRC
                                                                                                                                                         GRC
                                                                                                                                                         GRC
                                                                                                                                                       MUS
                                                                                                                                                        MUS
                                                                                                                                                          MAC
                                                                                                                                                        GRC            NZL      MAC
                                                                             TZA MWI
                                                                                 UGA MOZ
                                                                                CHNUGA     GHA
                                                                                           BEN
                                                                                         NGANGA
                                                                                            KEN
                                                                                          MOZ
                                                                                            BEN
                                                                                          GHA
                                                                                           BEN
                                                                                               MNG IND
                                                                                                 IND
                                                                                               NPL SEN
                                                                                                    SEN
                                                                                                       BGD
                                                                                                        BGD
                                                                                                        BGD
                                                                                                     BGDCIVBGD HND
                                                                                                             EGYBOL
                                                                                                              IDN
                                                                                                             CMR PAK
                                                                                                               IDN
                                                                                                               HND
                                                                                                                  CMR
                                                                                                                 BOL
                                                                                                                   EGY
                                                                                                                  IDN
                                                                                                                  BOL
                                                                                                                PAK
                                                                                                                        THA
                                                                                                                      BOL
                                                                                                                       CMRSLV
                                                                                                                        PER
                                                                                                                          TUR
                                                                                                                        PHL
                                                                                                                               TUR
                                                                                                                               ECU
                                                                                                                             TUR
                                                                                                                               TWN
                                                                                                                             TUR ECU
                                                                                                                               PERECU
                                                                                                                                 ECU     CHL
                                                                                                                                         BRA
                                                                                                                                         BRA
                                                                                                                                            MYS
                                                                                                                                           MYS    ARG
                                                                                                                                                  PRT
                                                                                                                                                URY
                                                                                                                                                      MUS
                                                                                                                                                   MUSMACMUS
                                                                                                                                                       MAC   MAC  MAC
                                                                                                                                                                MAC
                                                                                                                                                              MAC
                                                                                                                                                                   MAC
                                                                                                                                                                     MAC
                                                                                                                                                                      MAC
                                                                                                                                                                            MAC
                                                                                                                                                                           MAC
                                                                                                                                                                          MAC
                                                                             TZA
                                                                             TZA  UGA
                                                                                    MWI   MOZ
                                                                                          MOZ NGA
                                                                                                MNG
                                                                                               IND
                                                                                              IND  SEN MNG
                                                                                                      BGD       LKA
                                                                                                                 CMR
                                                                                                                IDN    THA
                                                                                                                      CMRCMR
                                                                                                                       CMR
                                                                                                                        PHL
                                                                                                                       BOL
                                                                                                                      BOL  TUR
                                                                                                                          TUN  ECU
                                                                                                                                 ECUIRN
                                                                                                                                  PER
                                                                                                                                 IRN      MYS
                                                                                                                                         MEX
                                                                                                                                          CRI
                                                                                                                                           CHL
                                                                                                                                          CRI   URY
                                                                                                                                                URYARG
                                                                                                                                                     ARG MAC
                                                                                                                                                    ARG              MUS
                                                                                                                                                                       NZL    ISL
                                                                               CHN
                                                                                 CHN     GHA
                                                                                          BEN
                                                                                         GHA       SEN
                                                                                                     BGD   CIVCIV
                                                                                                               PAK
                                                                                                             EGY
                                                                                                             CIV  BOL
                                                                                                                CIV CMR
                                                                                                                   MAR
                                                                                                                   MAR PHLTUR  COL PER
                                                                                                                                  ECU
                                                                                                                                    CHLMYS
                                                                                                                                       CHL MUS
                                                                                                                                           CRI
                                                                                                                                         CHLURY
                                                                                                                                            IRN
                                                                                                                                              URY
                                                                                                                                                URY
                                                                                                                                              ZAF
                                                                                                                                            URY
                                                                                                                                             ZAF MUS
                                                                                                                                                  MUS  ARGISR          NZL
                                                                                                                                                                       NZL
                                                                                 UGA
                                                                                  MWI      BEN
                                                                                           GHA
                                                                                            BEN
                                                                                             IND      LKA      PAK THA
                                                                                                                  CIV  PHL
                                                                                                                     THA
                                                                                                                      THA
                                                                                                                     BOL     IRN  ECU
                                                                                                                                IRN              URY                        ISL
                                                                             TZAUGAUGA GHA
                                                                                  MWI       GHA
                                                                                           MOZ
                                                                                           GHA
                                                                                            GHA
                                                                                           MOZNPL SEN EGY
                                                                                                IND         CIV  CMR
                                                                                                               CIV
                                                                                                               HNDTHA  PHL
                                                                                                                      THATUR
                                                                                                                            TUR
                                                                                                                           TUR
                                                                                                                          TUN     PER
                                                                                                                                     IRNBRA
                                                                                                                                          CRI  MUS
                                                                                                                                             URY                    AUS
                                                                                                                                                                    NZL   ISL
                                                                                                                                                                           ISL
                                                                              TZA
                                                                               TZA         BEN
                                                                                          BEN
                                                                                            GHA MNG  BGD HND
                                                                                                     SEN
                                                                                                    SEN         PAK    BOL
                                                                                                                      PHL     COLECU
                                                                                                                                  PERIRN    CRI      ARG NZL         NZL
                                                                                                                                                                    NZL    ISL
                                                                              TZA   UGANPLBEN
                                                                                            GHA   PAK      PAKPAK
                                                                                                               HNDPAK            IRN
                                                                                                                                  ECU
                                                                                                                                    MYS
                                                                                                                                   IRN      CRI
                                                                                                                                             VEN
                                                                                                                                             CRI URY                AUS   ISL
                                                                                  MWI    NPLNPL
                                                                                             NPL
                                                                                            BEN   SEN
                                                                                                  BGD
                                                                                                PAK
                                                                                               MNG
                                                                                                SEN
                                                                                                     BGD
                                                                                                    BGD
                                                                                                    BGD
                                                                                                  MNG   MNG
                                                                                                        MNG CIVCIV
                                                                                                               CMR
                                                                                                               PAK
                                                                                                              CIV
                                                                                                              PAK
                                                                                                             PAK
                                                                                                             HND
                                                                                                                  THA
                                                                                                                CIV    BOL TUR
                                                                                                                         GTMTUR SLV
                                                                                                                              IRNIRN
                                                                                                                                  IRN MYS  MUSMUS
                                                                                                                                               URY    ARG NZL
                                                                                                                                                      ARG
                                                                                                                                                     ARG               ISL
                                                                                                                                                                     ISL ISL
                                                                               TZAUGA      BEN
                                                                                            BEN
                                                                                           BEN   SEN           HND
                                                                                                              HND
                                                                                                             PAK
                                                                                                               CIV
                                                                                                               HND GTM
                                                                                                               HND     BOL         PER      MUS
                                                                                                                                            MUS                   ISL
                                                                                   MWI  GHA
                                                                                       NPL
                                                                                       NPLNPL
                                                                                        NPLNPL
                                                                                            BEN
                                                                                           MOZ
                                                                                         UGA      BGDLKA PAK  HND
                                                                                                            PAKHND
                                                                                                               CMR GTM
                                                                                                             PAK             GTMECU MUS
                                                                                                                               IRN         MUS  URY
                                                                                                                                              CRI
                                                                                                                                              URY
                                                                               TZAMWI
                                                                                   UGA
                                                                                   MWI NPL  NPL
                                                                                           NPL   BGD PAK
                                                                                                   SENPAK
                                                                                                        PAK
                                                                                                       PAK
                                                                                                       PAK CMRCIV                                                   NZL
                                                                                                                                                                  NZL
                                                                                      NPL
                                                                                        NPL
                                                                                        NPL     BGD SEN
                                                                                                      MNG
                                                                                                     MNGMNG  CIV
                                                                                                           CMR
                                                                                                             CMRTHA GTM   GTM
                                                                                                                          GTM
                                                                                 MWI
                                                                               TZAMWI
                                                                                TZA     NPLNPL
                                                                                            NGA BGD
                                                                                                 BGDPAK                     GTMSLV  PERURY   CRI
                                                                                   MWI NPL     BGD        CMRTHA GTM                         URY
                                                                                         UGA     BGD
                                                                                               BGDPAK
                                                                                                    MNG     HND
                                                                                          GHA       LKAMNG  HND
                                                                                                BGD  MNG
                                                                                  MWI
  8.5




                                                                                      MWI
                                                                                      MWI


                                                      4                     6                   8              10                                                                                        12
                                                                                 Log Per capita GDP PPP I$2000




                                                                                                                        35
Figure 9. Exports of Services as a Share of Service Value Added, Developing vs. Developed
Countries
    %

   10
                                                                                         Developing
                                                                                          countries

    9



    8



    7
                                                                                         Developed
                                                                                         countries

    6



    5




Note: Developing countries are defined as middle and low income countries. Developed
countries are high income OECD countries. Source: World Bank 2008a.

Figure 10. Modern & Traditional Service Export Growth, 2000-2006
    40%

    35%                Modern

    30%                Traditional


    25%

    20%

    15%

    10%

     5%

     0%
            Malaysia    Thailand     Korea   Singapore     China       India   South Asia East Asia     World
    -5%

 Source: Balance of Payments, IMF. 2008.
 Note: Modern service include exports in telecommunications, computer and information services, other business
 services, financial services, insurance, royalties and license fees. Traditional services include travel,
 transportation, construction and personal, cultural and recreational service exports. * Data for China is from 1995-
 2007.

                                                         36
 Figure 11. Composition of Service exports by broad 10 categories, Malaysia

                                         1995                                                                     2000

                                                                               Personal,
                                                                              Cultural and
                                      Government
                                                                              Recreational
                                                                                                               Government

                                                      Transport
                                                                                                                              Transport
             Other Business                                                               Other Business
                Services                                                                     Services



                                                             Travel
                                                                                                                                         Travel



                                                                           Royalties and
             Royalties and                                                 License Fees
             License Fees Insurance
                                                                            Computer
                                                                           Information                Construction
                                                                                       Finance Insurance


                                         2007                                                                       2009


      Royalties and      Personal,                                           Royalties and                                Government
                                                                                                            Personal,
      License Fees      Cultural and                                         License Fees
                                             Government                                                    Cultural and
                        Recreational
   Computer                                                                 Computer                       Recreational
  Information                                                              Information
                                                                                                   Other Business           Transport
  Finance               Other Business                  Transport          Finance
                           Services                                        Insurance                  Services
 Insurance




                                                                                                                                Travel
                                             Travel

 Construction                                                              Construction




Source: Balance of Payments, IMF. 2012.




                                                                      37
Figure 12. Evolution of Malaysia’s service export basket, detailed view
otherbusinessservices
insuranceservices
insursrvsothdirinsur
communicsrvstelecommu..
communicationservices
constructionservices
travel
businesstraveloth
financialservices
seatransport
seatransportpassenger
personaltraveloth
personaltravel
othbussrvsmiscbusinesspr..
transportation
airtransport
othbussrvsoperationalleas..
seatransportoth
airtransportoth
personaltravelhealthrelate..
personaltraveleducrelated..
othtransportoth
othtransport
constructioninthecompilin..
personalculturalrecreation..
perscultrecreationalsrvsoth
airtransportpassenger
governmentservicesnie
govtsrvsnieoth
govtsrvsnieembassiescon..
govtsrvsniemilitaryunitsag..
othbussrvsmerchantingoth..
merchanting
miscbusproftechoth
computerinfosrvscompute..
computerinformationservic..
miscbusproftecharchengin..
seatransportfreight
insursrvsfreightinsur
airtransportfreight
royaltieslicensefees




Note: Modern services are colored orange, whereas blue is for traditional services.
Source: Balance of Payments, IMF. 2012.




                                               38
Figure 13. Service Sophistication Index (EXPY) for Select Emerging Economies, 1990-2007
                17000

                16000

                15000

                14000

                13000
 Service EXPY




                12000

                11000

                10000

                 9000

                 8000

                 7000
                        1990   1993         1996      1999        2002          2005

                                 Malaysia     China   Korea   India      Singapore

Source: IMF Balance of Payments as described in text.
Note: Sophistication index EXPY




                                                        39
Figure 14. Country Scatterplots: Log per-capita GDP and Log Services Export
                                Sophistication
                                   1995-98
                  ERI
                  ETH
                  YEM
                  PAK
                  PRY
                  RWA
                  FIN
                  IND
                  KEN
                  KWT
                  LKA
                  MMR
                  BWA
                  DMA
                  BDI
                  BEN
                  MRT
                  NER
                  BLZ
                  VEN
                  BIH
                  BLR
                  JPN
                  LUX
                  TUN
                  HUN
         8.1
         8.2
         8.3
         8.4
         8.5
         8.6
         8.7
         8.8
         8.9
         9.0
         9.1
         9.2
         9.3
         9.4
         9.5
         9.6
         9.7
         9.8      DOM
                  BGD
                  SVK
                  SYC
                  SYR
                  CYP
                  COG
                  CHE
                  MOZ
                  LAO
                  KGZ
                  ISL
                  GUY
                  GNB
                  GHA
                  GEO
                  GBR
                  POL
                  USA
                  UGA
                  SLV
                  SLE
                  Malaysia




                                 2007-09
                    BHR
                    LBR
                    LBY
                    MDA
                    MLI
                    NER
                    NLD
                    NZL
                    PHL
                    RWA
                    TZA
                    YEM
                    IND
                    KEN
                    KNA
                    DZA
                    BLZ
                    BTN
                    ARM
                    HRV
                    HTI
                    HND
                    VUT
                    LUX
           10.0
           9.8
           9.6
           9.4
           9.2
           9.0
           8.8
           8.6
           8.4
           8.2      LAO
                    NOR
                    GUY
                    USA
                    CMR
                    CPV
                    AUS
                    BGD
                    ISR
                    PNG
                    STP
                    HKG
                    OMN
                    NGA
                    MNG
                    MAC
                    LCA
                    GRC
                    CHN
                    CIV
                    GNB
                    IRQ
                    Malaysia




                                    40
Figure 15. Growth Relationships of Service and Manufacturing Value-Added
      Panel A: GDP Growth and Service Value-Added Growth (2000-2005)
    GDP growth (controlling for initial log GDP per capita)
                 0               5             10




                                                                           0                5              10     15
                                                                                  Service output growth

                                                       Panel B: GDP Growth and Manufacturing Value-Added Growth (2000-2005)
    GDP growth (controlling for initial log GDP per capita)
    -5           0               5             10




                                                              -5           0               5               10    15
                                                                               Manufacturing output growth

Source: Authors calculations using data from World Bank, World Development Indicators. Note: Each point in the
chart corresponds to 5 year growth during 2000-2005 for a specific country. GDP growth rates control for level of
initial income per capita. All values are in constant 2000 US$. Growth rates are compounded annual averages. The
sample consists of 134 countries.

                                                                                              41
Figure 16. Revealed Comparative Advantage in Goods and Services, Malaysia
   1.2


   1.1
                                                                                    Goods
    1


   0.9


   0.8


   0.7

                                                                                Services
   0.6


   0.5


   0.4
         1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: Balance of Payments, IMF and World Development Indicator, WDI. 2008.

Note: The RCA index is calculated using the following concept: where E=exports, c=country index, j=specific
sector index w=world, t =total exports of goods and services; Data is in current US$ terms.
RCA = (ECJ / ECT )/ (EWJ / WWT )




                                                       42
Figure 17. Current Account Balance as Percent of GDP: Malaysia and USA 1980-2011
                                        20



                                        15



                                        10
   Current account balance (% of GDP)




                                         5



                                         0
                                              1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010


                                         -5



                                        -10



                                        -15

                                                                               United States      Malaysia

Source: World Development Indicators, World Bank. 2013.




                                                                                         43
                   Figure 18: OECD FDI Regulatory Restrictions Index: 1997-2012
Panel A: FDI Regulatory Restrictions:Malaysia: Manufacturing vs Tertiary Sector
                                                   0.8


   OECD Regulatory Restrictions Index (0-1)                                                                                                                 Tertiary
                                                   0.6



                                                   0.4
                                                                                                                                Manufacturing

                                                   0.2



                                                                            0
                                                                                                    1997               2000          2003          2006           2009        2012


                                                                                               Panel B: FDI Regulatory Restrictions: Tertiary Sector, by Country

                                                                                    0.8
                                     OECD Regulatory Restrictions Index (0-1)




                                                                                    0.6



                                                                                    0.4
                                                                                                               Malaysia
                                                                                                               India
                                                                                    0.2
                                                                                                               China
                                                                                                               Korea

                                                                                                    0
                                                                                                        1997             2000          2003          2006              2009     2012


   Panel C: FDI Regulatory Restrictions: Tertiary Sector, Malaysia by Subsector
                                                                                               0.8
                                                          OECD Regulatory Restrictions Index 0-1)




                                                                                               0.6



                                                                                                                Business Services
                                                                                               0.4
                                                                                                                Financial Services
                                                                                                                Communication
                                                                                               0.2              Media
                                                                                                                Distribution

                                                                                                    0
                                                                                                        1997             2000          2003          2006              2009     2012


                                                                                                                                              44
Table 1. Malaysia--Sources of Growth, Total Economy:
1990-2007
Annual percentage rate of change
                           1990-
                            2007  1990-2000    2000-2007
Output                       6.4       7.3        5.1
Employment                   2.7       3.3        1.8
Output per worker            3.6       3.8        3.2
  Contribution of:
    Capital                  2.7       3.5        1.5
    Education                0.3       0.3        0.3
    Land                    -0.1      -0.1        0.0
    Factor
Productivity                 0.6       0.0        1.4
Source: National Accounts and calculations as explained in
text. Percentage changes of the components may not add to
the total due to rounding (interaction terms).




                              45
Table 2. Malaysia--Sources of Economic Growth by Major Sector,
1987-2007
Annual percentage rate of change
                                      1990-2007       1990-2000        2000-2007


                                                      Agriculture
Output                                   1.8              0.8              3.3
Employment                               -0.6             -1.1             0.1
Output per worker                        2.5              1.9              3.3
  Contribution of:
    Capital                              1.3              1.6              0.8
    Education                            0.3              0.2              0.4
    Land                                 0.2              0.5             -0.1
    Factor Productivity                  0.6              -0.4             2.1


                                                    Manufacturing
Output                                   7.8              9.9              4.8
Employment                               2.3              5.0             -1.3
Output per worker                        5.3              4.7              6.2
  Contribution of:
    Capital                              0.7              -0.9             3.0
    Education                            0.2              0.2              0.2
    Land                                 0.0              0.0              0.0
    Factor Productivity                  4.4              5.5              2.9


                                                       Services
Output                                   7.7              8.6              6.4
Employment                               3.9              4.2              3.5
Output per worker                        3.6              4.2              2.8
  Contribution of:
    Capital                              0.7              0.7              0.8
    Education                            0.3              0.3              0.3
    Land                                 0.0              0.0              0.0
    Factor Productivity                  2.6              3.3              1.7

Source: Department of Statistics and calculations as explained in the text.
Percentage changes of the components may not add to the total due to rounding
(interaction terms).
Note: Labor shares used in these calculations are as follows: Total Economy (.38),
Agriculture (.45), Manufacturing (.28), and Services (.41)




                                         46
Table 3. Labor Productivity Levels, by Sector, 2005
PPP International Dollars per worker
                                                                           Ratio
                   Total      Agriculture     Industry     Services       (4)/(2)    Ratio (4)/(3)
                    (1)           (2)            (3)         (4)            (5)           (6)

Malaysia*         30,593        17,544         49,270       25,439          1.5          0.5

Korea             40,013        17,199         60,012       34,556          2.0          0.6
Thailand          12,647        3,335          24,948       14,818          4.4          0.6
China**           7,230         2,021          14,853       9,608           4.8          0.6

Bangladesh          3,319        1,390          6,208        4,679          3.4          0.8
Nepal               2,596        1,513          1,716        5,552          3.7          3.2
India               4,540        1,597          7,479        8,901          5.6          1.2
Pakistan            7,952        3,556         10,439       11,829          3.3          1.1
Sri Lanka           8,990        4,968          8,906       11,856          2.4          1.3
Sources:
* The utilities industry in Malaysia is included in services rather than industry.
** Data for China is from 2004 and taken from Bosworth and Collins (2003).




                                                 47
Table 4. Sources of Growth by Sector for Malaysia, Thailand, Korea, and Taiwan, China:
1998-2006

Annual percentage rate of
change

                                          Malaysia                                       Thailand*
                                                          Output                                          Output
                                                           per                                             per
                           Output      Employment         worker             Output   Employment          worker

Total Economy                5.6             2.3             3.3              4.9           2.3             2.6

Industry                     5.7             1.6             4.1              6.6           3.7             2.8
Manufacturing                7.4             1.1             6.3              7.2           3.9             3.1

Services                     6.0             3.7             2.2              3.8           3.8              0.0
Modern Services              7.0             6.5             0.5              0.9           3.6             -2.6
Traditional
Services                     4.8             3.5             1.3              3.1           4.4             -1.2

                                            Korea                                     Taiwan, China*
                                                          Output                                          Output
                                                           per                                             per
                           Output      Employment         worker             Output   Employment          worker

Total Economy                5.6             1.9             3.6              3.8           1.1             2.7

Industry                     9.6             0.8             8.7              4.4           0.9             3.5
Manufacturing                9.9             0.8             9.1              5.3           0.9             4.4

Services                     4.7             3.1              1.5             3.8           2.1             1.7
Modern Services              5.0             5.9             -0.9             3.6           3.5             0.1
Traditional
Services                     4.4             0.4             4.0              4.2           1.6             2.6
Sources:
Note: Modern services is defined as finance, insurance, and business services. Traditional services is defined as
wholesale/retail trade and hotels and restaurants.
* Years for Thailand are 1998-2005, and total services excludes utilities.
** Years for Taiwan, China are
1999-2006




                                                        48
Table 5 : Share of Service and Goods Exports in Total
Exports


                                                                                                   Share of
                                                                                                 computer &
                                 Share of service                   Share of goods               information
                             exports in total exports          exports in total exports            services

                                1982               2006          1982              2006                  2006
Log GDP per capita              -4.77              -1.99         -5.53              1.99                -14.01
                              (29.11)            (27.22)       (29.91)           (27.22)               (14.21)
Log GDP per capita2             0.45                0.78         0.96              -0.78                 2.92
                               (4.20)             (3.96)        (4.31)            (3.96)                (2.12)
Malaysia indicator          -13.90***          -17.76***        14.09           17.76***                 -0.29
                               (2.68)             (2.78)        (2.66)            (2.78)                (1.51)
Singapore indicator             2.81           -16.50***         -2.66          16.50***
                               (2.16)             (4.16)        (2.15)            (4.16)
India indicator                 1.38            19.09***         -3.16         -19.09***           56.44***
                               (4.39)             (3.29)        (4.45)            (3.29)            (1.78)
China indicator                 -0.89               8.79         -0.88             -8.79             -1.86
                               (7.46)             (8.34)        (7.48)            (8.34)            (4.24)
Control for size                 Yes                Yes           Yes               Yes               Yes
Observations                     109                125           111               125               104


             Source: WDI
             Note: *** represents significance at 1%, ** represents significance at 5%, * represents
             significance at 10%. Country size is measured by land.




                                                    49
        Table 6. Cross-Country Determinants of Investment and Saving, Percent of GDP


                     Panel A                                                          Panel B

Investment (% of                                            Domestic Savings (%
GDP)                         1995             2006          of GDP)                           1995        2006

Log real GDP per                                            Log real GDP per
capita                    12.07***            8.00          capita                         15.21***       14.81*
                           (3.36)            (2.83)                                         (5.81)        (8.15)

Log real GDP per                                            Log real GDP per
capita2                      -0.74          -0.49***        capita2                         -0.66***       -0.59
                            (0.21)            (0.18)                                          (0.37)      (0.52)

Malaysia                   20.97**            -2.02         Malaysia                       17.51***      11.84***
                            (0.91)           (0.70)                                         (1.43)        (1.92)

India                      9.59***         13.62***         India                          13.25***      14.09***
                            (2.02)          (2.04)                                          (2.61)        (5.05)

China                     18.18***         22.86***         China                          27.81***      27.03***
                           (2.18)           (2.07)                                          (2.80)        (5.19)

Control for size             Yes               Yes          Control for size                   Yes         Yes

Observations                 164               137          Observations                       164         138


               Source: WDI
               Note: *** represents significance at 1%, ** represents significance at 5%, * represents
               significance at 10%. Country size is measured by land.




                                                      50
         Table 7. Panel A. Service is less vulnerable to the investment downturn


              Average Service growth                                   1995-2007

              Investment (as ratio of GDP)                                0.16***

              Initial GDP per capita                                        0.000

              Openness (trade as % of GDP)                                  0.003

              Credit (% of GDP)                                             -0.01

              Population growth                                              0.04
              Control for size                                               Yes

              Observations                                                   161

Panel B. Malaysia’s “manufacturing� output is more vulnerable to the investment
downturn


              Average Manufacturing growth                                 1995-2007

              Investment (as ratio of GDP)                                    0.74***

              Initial GDP per capita                                           0.000

              Openness (trade as % of GDP)                                      0.01

              Credit (% of GDP)                                              -0.08***

              Population growth                                                0.94**
              Control for size                                                   Yes

              Observations                                                       157
             Source: WDI
             Note: *** represents significance at 1%, ** represents significance at 5%, * represents
             significance at 10%. Country size is measured by land.




                                                    51