traditional services such as transportation and construction use some of the same infrastructure as goods exports (ports and roads), the needs of modern service production (such as high internet bandwidth, education) tend to be distinct (see Ghani 2010).

# **INTERNATIONAL TRADE**

Malaysia’s recent economic growth has been leveraged by trade flows. On average, from 2000-2007 total trade was twice the size of GDP for Malaysia whereas in China or India the magnitude of trade was modestly less with 60% and 30% of GDP respectively during the same period. A time series comparison of Trade (% of GDP) is shown in Figure 7a. The figure accentuates that countries such as China<sup>14</sup> , India and Korea have had a stronger domestic demand component of growth whereas GDP growth is leveraged considerably by trade for both Malaysia and Singapore. Evidence suggests that more open countries seem to have experienced faster productivity growth as economies open to the rest of the world are able to absorb the rapid technological advances in the advanced nations. With this in mind, the following discussion documents recent patterns in the growth and technological sophistication of Malaysia’s exports abroad. We contrast the relative performance of manufacturing and services trade separately. Finally, to provide a benchmark for these calculations, we report cross cross-country regressions involving international trade and broad economic growth. These regressions should serve to confirm whether the sophistication measures are an important indicator of successful growth.

## **Manufacturing Trade Patterns**

The strategic location and historical role as a regional hub for commercial interactions with the West has given Malaysia a long history of international trade in manufacturing. In fact, the Global Competitiveness Report published by the World Economic Forum recently ranked Malaysian ports as 13th in the world, just behind Singapore and Hong Kong SAR, China in East Asia. In this section we evaluate the recent performance of Malaysia’s trade in goods with special emphasis on the distinction between modern and traditional exports. First, we consider goods exports based upon the technological classification of the OECD as discussed above in the defining modern and traditional service sections. Thus, we use commodity-level trade data from the UN COMTRADE database to classify Malaysia’s exports into 4 categories based upon technological intensity. In Figure 7b, we compare the relative growth in high-technology goods exports to low-technology and resource-based exports for several countries during 1995-2006. Although the level of growth in Malaysia’s exports are slightly lower than reference countries such as Singapore and Korea, Malaysia records strong growth of over 8.5 percent annually in high-tech exports. In fact, its growth in these modern exports over the past decade has been stronger than that of Singapore, which had relatively higher growth in lower-technology commodities. An alternative perspective of the technological intensity of trade is shown in Figure 7c. Here we plot a time-series of the share of high-technology exports to total goods exports for the period 1990-2006. What is immediately striking is the high share of advanced,

> 14 China, refers to Mainland China. Unless otherwise noted, data for China do not include data for Hong Kong SAR, China; Macao, China; or Taiwan, China.

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