Foreign capital and industrialization in Malaysia1995

The role of foreign capital in developing economies is a controversial topic. Supporters view it as the epitome of industrial development, while critics regard it as an instrument of underdevelopment.

Using both conventional and unconventional approaches, the author finds foreign capital to have played a positive role in Malaysia's industrialization. The branch- and industry-level analyses show generally strong pecuniary effects by foreign capital. Local-dominated branches and industries, however, show strong linkages with the domestic economy. The firm-level analysis tends to reveal strong technological spillovers from foreign capital.

Both market and non-market mechanisms of coordination were instrumental in the development of technical and pecuniary links between foreign and local...