The Role of Institutions and Industrial Policy: The Constraints of Industrial Development in Sabah

Abstract

This article examines the role played by institutions in Sabah’s industrial development. Industrialisation is widely acknowledged as the key to pursuing structural change and attaining an economy-wide accumulation of capabilities because it involves capital-intensive activities that require investments in physical capital, human capital and technological advancement, all of which lead to the modernisation of the state’s economy. Thus, the configuration of a nation’s industrial policy is central to expanding and diversifying downstream activities. Nonetheless, effective industrial policy implementation depends on the role played by institutions that take elite policy actors into account when configuring economic interests and priorities. In the case of Sabah, although the state is rich in resources, the implementation of its industrial policy seems to have been impeded by certain factors. Political influence is embedded in existing institutions, and there are uneven power relations, patronage and rent-seeking behaviours. These have collectively constrained industrial policy arrangements and implementation. This study employs qualitative methods, gathering primary data via elite interviews and augmenting this with extensive secondary sources.