Paper Example on International Trade and Environment: Malaysia Case Study

In the last several decades globally leaders have been at the forefronts calling for the adoption of green methods and technology in enhancing international trade. However, the call remains elusive to many countries. Large economies like China, US, Germany, Japan and others have already accepted to lower their carbon emissions to the environment, and the pressure is being extended to other economies, irrespective of their size.

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The is increasing pressure for all export-importing countries to adopt to globally adequate environmental measures such as products standards and eco-labelling which look like it will affect market access and competitiveness in the global stage (Devadason, & Chenayah, 2010). Malaysia, as an export depending country, stands at a greater risk to the measures being initiated. In response, the country has no option other than re-looking at its trade and the environmental impact and initiating measures that will align it with the international needs for environmental conservation, as a way of continuing to access global markets and remaining competitive.

This research paper looks at Malaysia export-import trade, and the final environmental impact in the country and the world in general.

Trade and Environment

It is without a doubt that there is international liberalization of trade (Devadason, & Chenayah, 2010). However, some economists and environmental experts are either linking or delinking trade from environmental pollution. Those arguing for the delinking of the two are of the opinion that environmental conservation should be tackled at the point of production and some at the point of consumption, with little limitations at the point of exchange, which is the basis of international trade. That is to mean those producing products for the global market should address issues at their industrial level, and the countries which consume them address them at the consumption level. In essence, these class of economists is the continuation of liberalization of markets for whatever is produced, without undue embargos. In that regard, the issues should remain national issues and not international affairs.

There is intense criticism on those linking trade to environmental pollution. A case in the point is that greening international trade is aimed at preventing less developed economies from fairly competing in the global markets. It is factual that most of the developing countries do not have the capabilities to adhere to the strict international greening standards and as a result may end up paying the price when global markets are shut for them particularly in trade areas where they have a comparative advantage. For economies like Malaysia which is export-dependent, with serious concerns for its ability to adapt to the international greening standards, such policies are likely to harm them more than to benefit them.

To better illustrate the impact likely to be felt in Malaysia, let us look at the countrys import-export data for the year 2010-2014, as given by the World Bank Statistics ("Imports of goods and services (constant 2010 US$) | Data", 2017).

Year Exports (billions $) Imports

2010 221.8 181.10

2011 231.00 192.52

2012 227.00 201.14

2013 227.50 209.58

2014 238.95 212.12

Malaysias exports remains significantly higher than its imports. The scenario presents an advantage when it comes to the balance of trade. However, that makes it a key pollutant when linking trade with environmental degradation. A significant portion of the imports are in the intermediate products, which they use as inputs for production of more products for export.

Vertical Specialization in Trade; Malaysia

Development of vertical trade in Malaysia has taken a hike in the recent years due to numerous production processes in the country. Malaysia relies heavily on trade, which is always larger than the countrys GDP. Malaysia is among the leading benefactors of FDIs, the majority of them in the electronics and electrical sector, which also provides the country with significant export products (Wai, 2011).

Malaysia is a small East Asia economy that has experienced a significant growth for the past five decades. The Malaysian economy adopted an export-oriented economy in the 1970s, and that has enabled it to experienced rapid growth both in GDP and per capita (Wai, 2011). The export-oriented policy was mainly focused on the manufacturing sector. But since the country wanted to improve the scope of its development products, it opened its economy to FDI, which continues to flow into the country in large numbers. As a result, Malaysia has transformed from being a commodity market to now an industrialized economy.

Malaysias major trading partner include USA, Japan, Singapore, Taiwan and the EU. In past few years, China has taken as the leading destination for Malaysian exports.

Input-Output Model

Following claims that intermediate goods could be used inputs or directly consumed in that state, economists changed from using intermediate products to calculate the vertical specialization in a country. In that regard, the analyses herein use the Hummels (2001) model to calculate and measure the effect of the vertical specialization in Malaysia.

Hummel's model illustrates the occurrence of vertical specialization in three stages. First, the products must be produced in two or more sequential stages. Secondly, at least two or more countries are involved in the production process where each adds some value to the product, and lastly, at least one of the affected countries must use an imported product in its production line. To measure Malaysias vertical specialization, we at least need to know the value of its intermediate imports, the value of total output and the value of total exports. After knowing all those values, then following formulae is then applied.

VS = intermediate importstotal output*total exports

Based on the data from the World Bank, Malaysias intermediate imports in globally in the year 2010 stood at $37 billion ("Malaysia | Import (US$ Thousand) | Intermediate goods | Import | from By Country and Region | 2010 - 2014 | WITS | Data", 2017), the countries total output stood at $185 billion, and the countrys total exports stood at $158 billion ("Department of Statistics Malaysia Official Portal", 2017).

In that regard, the Vertical specialization is calculated as follows.VS = (37/185)*158 = 31.6

The above represents a countrys vertical specialization, however, to calculate each sectors contribution to the value, we use the value divided by each sectors contribution to the total output. In matrix notation, the general math will follow the following vector form equation.VS/X = Ua^m[I A^d]^-1X/XkWhere VS is the vertical representation, X is an n*1vector of exports, u is the identity matrix, n represents the number of sectors, and A^d representing an n*n domestic coefficient matrix.

Judging from the vertical specialization value above, we can conclude that the importation of intermediate products to Malaysia is impactful to all sectors of the economy. It, however, stands to examine the environmental impact such a large importation of intermediate products brings to Malaysia and the general impact outside the country. It will also give a practical guide as to whether Malaysia can adapt to the green trade being advanced by significant trading partners on the international stage.

Conclusion

Malaysias exports continue to grow at an exponential rate since it initiated its export-oriented policy in the 1970s. In light of starting that policy, the economy has several shortages of critical aspects of the processing line, and as a way of maintaining its export goals, it has been involved in the high import of intermediate products, which are used in the manufacture of export products.

However, following environmental changes globally, developed countries are now initiating policies that would affect even small economies like Malaysia. Malaysias domestic market is insignificant compared to its export figures, and the country relies on the international market to continue selling most of its products. The greening policies will most potentially impact the country. However, the countrys vertical specialization holds its comparative advantage which may give it more bargaining power among its trading partners. In light of all those, the country needs to initiate more green policies to protect the deteriorating environment, particular emission of greenhouse gases which is at the forefront of the ongoing climate issues. It is unlikely that the countrys continued export growth will be sustained at the expense of the deteriorating environment, which is now a concern for every country.

References

Department of Statistics Malaysia Official Portal. (2017). Dosm.gov.my. Retrieved 28 May 2017, from https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=81&bul_id=ZmpVRjRaUG9raFpoYkdRZVYrdFRpdz09&menu_id=YmJrMEFKT0p0WUIxbDl1bzZydW9JQT09

Devadason, E., & Chenayah, S. (2010). Trade and Environment: Issues and Policy Responses from the Malaysian Perspective (1st ed.). Retrieved from http://repository.um.edu.my/81926/1/FEA%202010-13.pdf

Imports of goods and services (constant 2010 US$) | Data. (2017). Data.worldbank.org. Retrieved 28 May 2017, from http://data.worldbank.org/indicator/NE.IMP.GNFS.KD?end=2015&locations=MY&start=2000&view=chart

Malaysia | Import (US$ Thousand) | Intermediate goods | Import | from By Country and Region | 2010 - 2014 | WITS | Data. (2017). Wits.worldbank.org. Retrieved 28 May 2017, from http://wits.worldbank.org/CountryProfile/en/Country/MYS/StartYear/2010/EndYear/2014/TradeFlow/Import/Indicator/MPRT-TRD-VL/Partner/ALL/Product/UNCTAD-SoP2

Wai, L. (2011). Vertical Specialisation in Trade: The Case of Malaysia (1st ed.). Retrieved from https://www.nottingham.ac.uk/gep/documents/conferences/2011/korea-conf-november/wai-heng-loke.pdf