Economic liberalization and Malaysian economic growth: The convergence club of Malaysia and ASEAN

Abstract

Liberalisation has been a focus of developing countries' policies; Malaysia adopted trade reforms since mid-1960s, and financial liberalisation was initiated during the late 1970s. This paper investigates the impact of economic liberalisation (financial and trade liberalisation) on Malaysian economy, over the study period of 1970 to 2016. This paper also aims to assess income convergence club between Malaysia and other ASEAN counterparts. The liberalisation analysis uses the bound testing approach of cointegration by Pesaran et al. (2001) while the Phillips and Sul (2007) methodology was employed to analyse convergence. The findings suggest that economic liberalisation play a significant role in promoting economic growth, while the application of Philips and Sul method shows that Malaysia converges with other ASEAN countries with regards to income convergence. Additionally, the convergence findings further support the notion that economic liberalisation promotes economy growth.