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Economist: Domestic-led growth no substitute for export-driven strategies [05-12-2012]  
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Domestic demand-driven growth should not be viewed as a substitute for export-led growth strategies.

Instead, by complementing both paradigms, Malaysia can capture the growth opportunities from an upswing in external demand.

Pursuing domestic demand-led strategies can help Malaysia achieve the growth rate needed to reach the high income goal by 2020.

RAM Holdings Bhd group chief economist Dr Yeah Kim Leng said although domestic-demand driven growth is already under way, many industries in Malaysia are unable to fully offset a sharp drop in exports.

"This means that it can only effect a partial decoupling from external demand,"he said, when addressing the MIER National Economic Outlook Conference 2013-2014.

A shift from an export-led growth to domestic demand-driven growth will show some differences in the impact on industrial capacity, employment and income.

"Malaysia's 'apparent' under-consumption and low private investment levels with the sizeable savings-investment gap lend support to the feasibility of the domestic demand-driven growth."

A higher level of spending by the middle- and upper-income groups will be needed, while the income of the low-income groups needs to be boosted.

"The focus of the Economic Transformation Programme on private investment will be the main driver of the domestic demand-driven growth, given the excess savings in the private sector and the capacity expansion and productivity growth linked with gross fixed capital formation."

Meanwhile, World Bank economist Dr Frederico Gil Sander said transforming Malaysia's labour force to be one that is productive requires the same structural reforms that will drive Malaysia's economic transformation.

"While direct measures to increase Malaysia's wage rates such as well-designed minimum wage can help, they must be implemented in tandem with efforts to shift the production frontiers."

Labour regulations can be modernised, he said.

Redundancy costs can be reduced, while unemployment and other social insurance can be introduced to protect workers, not jobs.

"Flexible work arrangements, complemented by childcare can be promoted to tap on women - a great source of untapped source of skills in Malaysia."

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