Abstract

This paper argues that Malaysia’s ability to diversify its economy and not be overly reliant on natural resource is due to the state’s institutional character and its historical process. Malaysia’s ability to avoid the resource curse rests on two factors. First, the path dependent nature of Malaysia’s economic arrangement - the prior existence of a thriving private sector and the late entry of commercial oil production and – provides the state with increasing returns to economic diversification. Second, Malaysia’s consociational arrangement imposes limits on policy options, giving the state little choice but to continue to adopt economic diversification strategies to keep to consociationalism’s distributive qualities.

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