Evaluating the Malaysian export processing zones: with special focus on the electronic industry

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: Export Processing Zones are geographical enclaves that have legally been excepted from the country´s normal customs barriers and other constraining legislations. Malaysia has used them to foster its manufacturing industries, particularly the electronic sector. They are intended to attract foreign exchange, create employment and increase exports. In a longer perspective they are also supposed to have indirect effects through the creation of backward linkages, transfer of knowledge and positive catalytic effects on the host country. The aim of this essay is to evaluate the EPZs’ impact on Malaysia and see if their objectives have been reached and what other effects they might have had. This essay is specifically focused on recent developments and what effect the increasing product fragmentation, the Asian crisis and the new regional free trade area (AFTA) have had on Malaysia and on the electronic industry in particular. This study shows that the EPZ has been a success when it comes to direct effects, but that the indirect effects are still relatively limited and concentrated to certain areas (Penang). It also concludes that the Malaysian EPZ will probably diminish in importance if the mentioned trend continues.

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