Sub-Title

ECN5641:
SUCCESS FACTORS FOR SUCCESSFUL STRUCTURAL
TRANSFORMATION IN DEVELOPING COUNTRIES

GS50114 SUBASHINI NADRAS

GS50746 KAMARIAH MIHAD
GS52105 ZATYL ALYAA ATHIRAH
GS52175 MUHAMMAD HAKIM SHAFIE
 STRUCTURAL TRANSFORMATION
 Structural transformation is defined as the shift of an economy’s structure from
low-productivity, labor-intensive activities to higher productivity, capital and skill
intensive activities. It is a long-term shift in the fundamental institutions of an
economy and this explain the pathways of economic growth and development.
 In short, it can be defined as the reallocation of economic activity across three
broad sectors (agriculture, manufacturing and services) that accompany the
process of modern economic growth (Herrendorf, Rogerson and Valentinyi, 2013).
 In technical terms, four essential and interrelated processes define structural
transformation in any economy: i) a declining share of agriculture in GDP and
employment; ii) rural-to-urban migration underpinned by rural and urban
development; iii) the rise of a modern industrial and service economy and a
demographic transition from high rates of births and iv) deaths (common in
underdeveloped and rural areas) to low rates of births and deaths - associated
with better health standards in developed and urban areas (Oyelaran-Oyeyinka,
2015; Timmer, 2012; Africa Focus Bulletin, 2013).
 The growth and development of an economy depends on both the institutional
environment (hard and soft) and availability of appropriate human resources. The
relationship between them is bidirectional and mutually reinforcing.
 ECONOMIC SECTORS

CLARK’S SECTOR MODEL

GDP COMPOSITION BY SECTOR IN 2010

2018

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An Overview Of Primary Sector In
Malaysia
• Start 1995 to year 2005, employment in
agriculture start to decline from 1.5
million to 1.3 million.
• However, productivity improve
especially in application of various labor
(better farming practices in large scale
commercial production)
• Under policy framework and National
Agricultural Policy 3 (1998-2010),
agriculture able to expand GDP growth,
generate more jobs and income for
poorest population, facilitate more
appropriate land and natural resources
practices, invest in irrigation and rural
infrastructure.
• During year 2002 to 2004, growths of
manufacturing continue outpace in
agriculture sector. Despite that,
agriculture still plays main components
of Malaysia economy.
• Innovation help agricultural sector to
move to another phase, manufacturing.
Contribute significantly to the growth
and development of Malaysia
MALAYSIA Changes in Relative Demand for
Labour in Malaysia (1984-1997)
The Malaysian Agricultural Industry In The Using a Decomposition
New Millennium – Issues And Challenges Approach
• NAP3 also focusing on modern • According to findings from
infrastructure, strengthening requisite 1984-2000, agriculture sector
economic foundation, upgrading quality employment decrease every
of human resources, development of year, meanwhile sector
indigenous. manufacturing and services
• There is lack of infrastructure in rural increase due to technologies
areas of Sabah, Sarawak, Pahang and change.
Kelantan since its require high • Increase efficiency through
investment. innovation.
• The general trend in Malaysia and • However, due to economic
elsewhere is towards increasing farm fluctuations and under
labor scarcities due to rapid migration reporting, wages worker cant
to urban areas, and increasingly determined as its sensitive.
burgeoning populace, demanding better
pay and competition for labor by Industrial Restructuring in
industrial sectors. Malaysia: Policy Shifts and The
• From NAP, there will be development of Promotion of New Sources of
new agricultural industries and products Growth
from primary commodities and natural • Economic expansion
resources through R&D. progressively led by
• Implement voluntary Audit; Good manufacturing.
Agricultural Practices (myGAP) – to • Malaysia still shortage of
ensure safety and welfare of workers, critical skills, including
reduce environmental pollution creative talents
• labor-saving technologies • Malaysia revised strategies
and approaches to retain this
talent. One of it through
TalentCorp
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 FACTOR #1 ECONOMIC REFORM (VIETNAM)
• Late 1980s Doi Moi (Renovation) improved its productivity in Agricultural Sector:
– Legalized private economic activity and exposed farms to markets and competition by eliminating
price controls and the state procurement system
– Relaxed restrictions on external and internal trade of agricultural goods and inputs
• The Foreign Investment Law of 1987 opened all sectors of the economy other than defense
to foreign investors and offered foreign firms generous tax concessions and duty exemptions.
• To balance the scale, Viet Nam introduced various reforms such as uniform rules of taxation,
and the freedom for enterprises to form their own trading relationships, to level the playing
field between SOEs, foreign enterprises, and private enterprises.
• In 1988-1989, SOEs received autonomy over the production process and price setting, and
were allowed to lay off workers. Importantly, SOEs had to begin operating subject to hard
budget constraints and could no longer rely on export subsidies. The combination of these
early reforms immediately changed the production incentives within the SOEs, increased
their exposure to market forces, and led to a drastic consolidation of the sector. By 2000,
about 5700 SOEs were present and by 2010, only 3364 SOEs remained in operation.
• The 2000 Enterprise Law made it easier for private enterprises to register and operate across
most industries. It reduced the time required to register an enterprise, leading to 50,000 new
registered enterprises between January 2000 and October 2002, about three quarters of the
total number of enterprises then registered.

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 FACTOR #2 TALENT-Reverse the Brain Drain
• Policy study – Africa’s national and regional strategies for ‘brain circulation’
and technological advancement tools – based on research networking and
EU–Africa collaborative initiatives.-Examples : The Pan- African programme and
the Intra-Africa Academic Mobility Scheme - provided a platform for the exchanges of
expertise and knowledge.
1. Egyptian programme of ‘joint collaborative efforts between Egyptian scholars abroad and
research institutions in Egypt’ - programme does not focus on the repatriation of Egyptian
experts abroad but on developing strong ties with their home country and creating a mechanism
to easily allow them to contribute to addressing local challenges and problems.
2. Morocco-engaging Moroccan experts abroad through a governmental programme supervised by
the prime minister - to build a forum of Moroccan competencies abroad and support their
participation in local strategic planning activities. In 2009, several agreements with relevant
networks in European countries like France and Germany were concluded under this programme.
3. Germany’s Returning Experts Programme - supporting brain gain - African scholars trained or
educated in Germany and interested in returning to their home countries, providing services such
as recruitment assistance. Example- Tunisia and Morocco, are eligible for salary top-ups when
returning to their home countries in addition to travel allowances.
4. Europe’s largest mobility programme - advancement of researchers’ careers, ‘The Marie
Skłodowska–Curie actions’ programme-to boost the mobility of outstanding researchers and
promote their return to their home country

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 FACTOR #3 TECHNOLOGY AND INNOVATION
Global Innovation Index 2018 Rankings

Country/ Economy Score (0–100) Rank Income Rank

China 53.06 17 UM 1
Malaysia 43.16 35 UM 2
Bulgaria 42.65 37 UM 3
Croatia 40.73 41 UM 4
Thailand 38.00 44 UM 5

Source from The Global Innovation Index 2018: Energizing the World with Innovation is the result of a collaboration
between Cornell University, INSEAD, and the World Intellectual Property Organization (WIPO) as co-publishers, and their
Knowledge Partners.

Understanding China’s Technological Rise

1. Technological Progresses and Innovations Can Be Planned
China is currently running many Apollo-like projects, such as the 863 program, the 973 program,
and the 13th five-year plan. Most of these project are targeted at catching up in strategic and
selected industries, such as those identified in the “Made-in-China 2025” strategy. Generated
massive funds to be channeled toward expanding R&D; hiring overseas Chinese experts as well as
foreign experts (especially in strategic sectors such as advanced material, electronic chips and
computing, aviation, bio-tech, and A.I. and robotics), importing high-tech capital goods, acquiring
foreign technological patents and licenses, and merging with or buying out foreign high-tech
companies, especially by state-owned Chinese corporations.
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 FACTOR #3 TECHNOLOGY AND INNOVATION
Understanding China’s Technological Rise
2. Size Matters
China’s internal market, now with 1.4 billion consumers and a per capita income of $8,000+
in nominal U.S. dollars and $15,000+ in PPP U.S. dollars, is also a blessing to innovation in
many ways. The huge market size promises sufficient return to cover the costs of either
acquiring foreign technology or undertaking a cumulative learning process to catch up with
frontier foreign technologies. The potential size of return also enables Chinese industries to
afford the pursit of very expensive technologies, such as CPU chips, nuclear energy, and
aviation and space technologies. In some cases, market size is also the key for unlocking the
“learning curve” effect, as in the cases of the Chinese solar and electric vehicle industries.
3. Free Thought Is Not a Necessity. Capacity Building Is.
The Chinese tradition of emphasizing education is also crucially important for its
technological rise. Besides the government’s spending 20 percent of its budget on
education, Chinese households also invest heavily, reaching levels equivalent to 50 percent
of the government’s education budget. Globally, China has the highest number of students
studying overseas and the ratio of these students returning to China has been increasing.
All these measures endow China with not only an educated and disciplined labor force to
work with newly introduced technologies, but also with the R&D capability to learn and
eventually innovate on top of existing tech.

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 FACTOR #3 TECHNOLOGY AND INNOVATION
• Thailand’s service sector is expanding, while the government is embracing the digital revolution to
boost productivity. The government recently launched a national e-payment system that would
help boost tax collection efficiency. In addition to upgrading the country’s strong manufacturing
base in automobiles and electronics, policy focus is also extending to new sources of growth. These
include industries such as robotics, aerospace, and biotechnology. As automation continues to
transform the future of work, promoting education and training initiatives in the country can help
upgrade skill-sets for today’s and tomorrow’s global job market.

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TERIMA KASIH / THANK YOU
www.upm.edu.my