OECD Investment Policy Reviews: Malaysia 2013

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Malaysia stands out as one of the economic success stories in Asia. Foreign direct investment (FDI) has played a major role in the growth and diversification of the economy, and has been a key part of an outward-oriented development strategy. As an early mover in terms of export-led development, Malaysia has traditionally received significant amounts of foreign investment relative to the small size of its economy. Today, Malaysia is a net outward investor, with its companies increasingly becoming regional and global players.

In spite of this enviable performance, the Malaysian economy is confronting numerous inter-related challenges as it strives to attain developed country status by 2020. Private investment as a share of GDP has declined, and FDI as a share of total FDI in ASEAN has decreased since the early 1990s.

The government has engaged in ambitious reforms across the board which have led to increased liberalisation and more efficient regulations and have contributed to a strong enabling environment for business. Malaysia will also continue to benefit from a dynamic and rapidly integrating region, thereby retaining the attention of investors.

OECD Investment Policy Reviews: Malaysia presents an assessment of the investment climate in Malaysia, including the institutional and legislative framework for investment. It focuses on policy options in the areas of investment, infrastructure, finance, responsible business conduct, corporate governance and green investment and discusses measures to help revive both foreign and domestic investment.


Financial sector development

Developed financial sectors provide payment services, mobilise savings, and allocate financing to firms wishing to invest. When they work well, they give firms the ability to seize promising investment opportunities, especially small and innovative enterprises and entrepreneurs that need external funding to expand and develop their business ideas. Well-functioning financial markets also impose discipline on firms to perform, boosting efficiency, both directly and by facilitating new entry into product markets. They also enable firms and households to better manage risks.Malaysia has one of the most developed financial systems among ASEAN countries. Broad-based reforms undertaken following the Asian financial crisis have improved the size, depth and soundness of the financial sector. As a result of reforms Malaysia has become the world’s most important Islamic financial centre. Malaysia is moving away from a bank-dominated financial system and towards a more sophisticated and diversified financial sector. This chapter describes the measures implemented to strengthen the banking sector and further develop Malaysia’s capital markets, and briefly draws on data and comparisons with other Asian countries to highlight developments or challenges ahead. Malaysia could push for policies that promote further regional and international financial integration and further enlarge the capabilities of its financial sector in order better to address the challenges of making the transition to a high-value added, high-income economy by 2020.


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