Emerging economy describes progressive economic condition of the nation. If the country has potential to get developed in near future then it is called as an emerging economy nation (Bussière, Delle Chiaie and Peltonen, 2014). Present study is based on Malaysia which is a transitional economic nation. Report will cover the exchange rate and currency of country. Furthermore, it will explain the effects of globalization on trade activities. In addition, balance of payment of Malaysia will be described in this a
Over a period, Malaysia has been developed to great extnet. After gaining independence in year 1957, this country has improved economic condition of nation. Before 1957, country was highly depended upon agriculture and commodity based sectors (Cuervo-Cazurra and Ramamurti, 2014). This has helped the nation in becoming a leading exporter of electronic equipment and other appliances. Statistical records of 2010 show that Malaysia now has become the open economy in entire world. Its trade to GDP ratio has improved a lot, nation has open economy in Malaysia that has helped the government in raising employment opportunities and income growth. Now approximately, 40% of jobs in Malaysia highly depend upon export activities. In year 1997-1998, this emerging market was facing financial crisis but later on, government has made changes in regulation and has improved its export activities (Sadorsky, 2014). This has supported region in its growth by 5.4%.
It has been analysed that 1% of households of Malaysia are living in extreme poverty. Due to this, government of country has paid attention on minimizing their poverty and improving well-being of residents. There were many people who were included in vulnerable group and they were living under economic shock. One of the major issues that was taking place in Malaysia was income inequality (Li, Cui and Lu, 2018). Thus, government has moved its target towards these vulnerable people.
Now economic of the Malaysia looks favourable. Open economy has supported country in improving condition of nation and improving well-being of people. Financial system of Malaysia has been structured and now, it is able to perform well. This financial system has boosted a well-capitalized banking system (The Effects of Trade Openness on Malaysian Exchange Rate, 2013). In the past 30 years, Malaysia has become an emerging country and it has potential to grow well in near future. It may get developed soon in the coming years. Export business has helped in improving economy condition of country thus, poverty rate has been reduced. The goal of Malaysia’s government is to improve income status by end of 2020 and ensure sustainable growth of country.
Malaysia has open and upper-middle economy condition. Growth report of commission on growth and development has identified Malaysia as growing region. Report reflects that average growth of the nation is more than 7% per year (The Impact of Exchange Rate Appreciation on Malaysian Trade, 2010). Malaysia Economic Monitor (MEM) shows that economy of the nation is improving rapidly. It has the diversified economy. Developed infrastructure proactive government policies has supported the Malaysia in overcoming from its financial crisis. Now, 1271 projects have been started in the Malaysia with total investment of RM 37.3 billion. Due to such large investment, 39990 employment opportunities have been increased in the nation. Government has invested a huge amount last year which has helped in raising 180240 new jobs in the nation. By this way, income sources for population have been increased and now, people of country are able to live a healthy life (Trade Performance: December 2016 and January - December 2016, 2016).
There are many companies operating which are contributing well in the development of Malaysia. These are Haemonetics, Osram Opto Semiconductor, X Fab Sarawak, KLS Martin, JCY group, etc. These firms have raised 6000 jobs for Malaysians and has generated RM4.1 billion revenues from export activities. Service and manufacturing industry of Malaysia is giving competition to other emerging markets. Now, Malaysia has become a nation which is exporting electronic appliances in high amount across the world. This helps the nation in increasing foreign reserves and improving value of currency (The Effects of Trade Openness on Malaysian Exchange Rate, 2013).
Exchange rate and currency of the country
Trade performance of Malaysia has been increased by 24.3% in 2017 to RM 430.5 bil as compare to last year. Export businesses are performing well and there is 2.3% increment in export activities as compared to last year. Currency of Malaysia is Malaysian Ringgit. Value of currency of the nation is increasing with the rapid speed. Exchange rate impacts on trade volume of the nation to great extent (Bussière, Delle Chiaie and Peltonen, 2014). Volatility in exchange rate affects overall international trade of nation due to which uncertainty may get arisen. This increases burden on the traders. Since 1970, Malaysia has become the major wood producer nation and it exports wood material. This plays a significant role in the development of Malaysian export sector (Sadorsky, 2014).
Statistical records of 2010 reflect that ringgit has been improved by 11.1% against US dollar. US is the fourth largest trade partner of Malaysia that accounts 10% of total trade. Real and effective exchange rates in Malaysia helps nation in increasing its competitiveness. Real effective exchange rate (REER) has been raised by 5.9% in the year 2010. Moderate REER appreciation helps region in improving condition of nation and make its ringgit exchange rate stronger. Malaysia has a strong manufacturing network. It imports raw material and export manufacturing appliances across the world (Li, Cui and Lu, 2018). This has improved foreign reserves of the region. By this way, value of currency has been increased to a great extent.
Manufacturing industry of Malaysia imports raw material and develop the finished goods. These products are being exported to other nations. This movement makes its trade more responsive and increases demand as well. Service sector firms are performing well and they are getting benefit with exchange rate appreciation. Malaysia-China are the another trade partners (Cuervo-Cazurra and Ramamurti, 2014). This trading partnership has affected exchange rates and trade has reached to 59 billion. China is major supplier of Malaysia. Sometimes, changes in exchange rates impact on their partnership.
In the year 2017, Total trade of Malaysia were recorded 19.8% to RM 154.26 billion. It has trade relationship with China, US, USA, Hong Kong, Japan etc (Li, Cui and Lu, 2018). Trading with China has given huge benefit to the Malaysia and has developed the nation by 26%. Trade openness has helped the Malaysia in making connection with many other countries and enhancing its trade operations. By this way region has become able to improve value of currency, now government of the nation is enjoying favourable economy condition and it is making efforts so that it can move towards development. The rising economic value and improving currency value support the nation in its development.
Globalization effects on country's trade relations
Malaysia has been the active member of various forms of international organisations like that of Organisation of Islamic Cooperation, Commonwealth of Nations, Non- Aligned movement and United Nations (UN). So, trade relations of Malaysia with eest of the world is very good and sound with countries of Asia, Africa and European Unions. This nation is one of the transition or emerging nations in respect of globalization and trade with other nations of world. Malaysia is also an active member of Association of South-east Asian Nations (ASEAN) and then affiliated with all the other international organisations after its agreement with the UN (Baylis, Smith and Owens, 2017). This all shows that how much important globalization is in this recent and current scenario where no nation would be able to work without the help and collaboration with others in world. Thus, helping economy of Malaysia to have its presence in international market with rest of world effects on GDP and investments would be clearly seen at this time.
Globalization would be defined to as that factor which is the main cause of why one country is able to work and do their business or trade with the others of world. Globalization is the main factor which is causing trade between two or more nations possible. Global trade and investment by one country with other is important phenomenon commonly used in current scenario which also led to rapid formation of liberalisation of finance, investment and trade as well. No country at present is left untouched with the effect of globalization as they are now trading and investing in some other nations of world and likewise, others are also doing the same. Malaysia being one of the most successful and emerging nations of South-east Asia is multi-racial and multi-cultural country.
In the year 1991, when actually this phenomenon came into existence of Liberalisation, Privatisation and Globalization, country set up key objective of Vision 2020 (Shahbaz, Mahalik and Sadorsky, 2018). In the starting phase of economy when it gained its independence from Britain, it was majorly agricultural based economy and now, it is emerged as industrialised economy. This was majorly with the effect of its adaptation of open policy of cultural, social and economic as well. It is very much clear that this globalization is bringing success into the way one particular country is doing or performing in respect of their GDP or other factors. This would be enabling them to increase business, trade and investment and thus, gaining overall profits for country with boosting up their foreign investment.
Globalization would be having both; positive and negative impact on country and its trade relations with rest of world. But majorly are to only consider the positive effect which this phenomenon is putting onto country and trade relations with others. Trade relation would be defined to as how and what are the link between one country with the other are how much they are importing and exporting from countries. The biggest trading partner of Malaysia is United States with about 14% while the exporting partner is Singapore which is exporting about 14% of goods and services to Malaysia.
Benefits of globalization on the trade relations of Malaysia are as follows:
Travel and Tourism- This is the most important benefit which any country would be having if they are doing trade with some other nation. More and more tourists would be attracted towards Malaysia like from India (Benefits and Challenges of Globalization in Malaysia, 2016). USA or others. The Travel and Tourism industry is having the greatest advantage if country is doing trade with the countries. Like in one of report of UN World Tourism Organisation which was conducted in year 2010, it stated that Malaysia was 9th most famous destinations in respect of tourist arrivals which was up to 24.6 million people from all around world.
Global marketing- Country was having a huge investment and flow of cash due to globalization which was reported as increment of about 1.6% in March 2013 with value of about MYR 114.94 billion.
Health improvements- Due to globalization, health care industry of country would also be improved as there would be inflow of the latest technology and imports of high quality machines (Yusof and Ramli, 2017). All the technology and improvements would be there into field of health and social care of country with getting them relief from dangerous disease and infections.
Balance of Payments
Balance of payments would be defined as that fundamental phenomenon which is recording and then analysing the actual balance and trade of one country with that of others. How much they are importing and how much they are exporting is to be included in the account of BoP. This account is major measure of country's growth and its traded with rest of the world and it could be both deficit which indicate the loss and surplus which reflect the profits of country if they are doing business with world (Malaysia Balance of Payment (BoP): Current Account (CA), 2017). So the current account of Malaysia in the year end of 2017 was about MYR 12865 million which had an increase from the last quarter of September 2017. As the BoP is always recorded and analysed on quarterly basis having both imports and exports of nation. This figure shows that country was having surplus in its current account balance which is the largest current account surplus from the 2nd quarter of 2014.
But there was deficit in the income balance of account which was recorded to as about MYR 31.18 billion the service deficit also grew to about MYR 6.93 billion (Borchert and Yotov, 2017). Current account could defined to as the sum total of all the imports less the exports of country which is also covering both of the goods and service, net transferable payments like that of the any financial help received from any other country and then the net factor income like that of the dividend and interest payments.
The financial account of BoP of Malaysia was having inflow of about MYR 5 billion which includes foreign direct investment (FDI), portfolio investment by both resident and non-resident Malaysians and other direct investment abroad (DIA). DIA was having lowed down inflow of about MYR 5.1 billion which was in the 3rd quarter of 2017 about MYR 6.2 billion.
Overall, from the facts and figures, it can be articulated that Malaysia is one of the most emerging nations of world and that of South-east Asia with having its relationship with almost all other countries. They are also having multi-cultural and multi-racial cultural which is effecting most of the sectors and industry of country. Globalization is having its impact on economy and cultural growth as well as development of country which is positive effect on other hand heavy outflow of its currency from nation could be called to as negative impact of globalization on country.
- Baylis, J., Smith, S. and Owens, P. eds., 2017. The globalization of world politics: an introduction to international relations. Oxford University Press.
- Borchert, I. and Yotov, Y.V., 2017. Distance, globalization, and international trade. Economics Letters. 153. pp.32-38.
- Bussière, M., Delle Chiaie, S. and Peltonen, T. A., 2014. Exchange rate pass-through in the global economy: the role of emerging market economies. IMF Economic Review. 62(1). pp.146-178.
- Cuervo-Cazurra, A. and Ramamurti, R., 2014. Understanding multinationals from emerging markets. Cambridge University Press.
- Li, M. H., Cui, L. and Lu, J., 2018. Varieties in state capitalism: Outward FDI strategies of central and local state-owned enterprises from emerging economy countries. In State-Owned Multinationals (pp. 175-210). Palgrave Macmillan, Cham.
- Sadorsky, P., 2014. Modeling volatility and correlations between emerging market stock prices and the prices of copper, oil and wheat. Energy Economics. 43. pp.72-81.
- Shahbaz, M., Mahalik, M.K. and Sadorsky, P., 2018. How strong is the causal relationship between globalization and energy consumption in developed economies? A country-specific time-series and panel analysis. Applied Economics. 50(13). pp.1479-1494.
- Yusof, M.K.A.B. and Ramli, N.B.R., 2017. The Effect of Selected Macroeconomic Variables and Globalization Factors on Return on Stock Market for Selected Sectors in Malaysia. International Journal of Academic Research in Business and Social Sciences. 7(6). pp.1004-1011.