Since its formation in 1963, Malaysia's economic performance has been one of Asia's best. Real gross domestic product (GDP) grew by an average of 6.5% per year from 1957 to 2005. Performance peaked in the early 1980s through the mid-1990s, as the economy experienced sustained rapid growth averaging almost 8% annually. Malaysia's economy was greatly impacted by the 1997 Asian financial crisis, but recovered.
High levels of foreign and domestic private investment played a significant role as the economy diversified and modernised. Once heavily dependent on primary products such as rubber and tin, Malaysia today is an upper middle-income country with a multi-sector economy based on services and manufacturing. Malaysia is one of the world's largest exporters of semiconductor components and devices, electrical goods, solar panels, and information and communication technology (ICT) products.
Early and colonial history
The Malay Peninsula and has been a centre for trade for centuries. Various items such as porcelain and spice were actively traded even before Malacca and Singapore rose to prominence. The Malacca Sultanate controlled the Straits of Malacca from its founding in 1402 to the 1511 invasion by Portugal. All the trade in the Straits, and especially the spices from the Celebes and the Moluccas, moved under its protection and through its markets.
In the 17th century, porcelain and spices were found in several Malay states and were actively traded. Large deposits of tin were found in several Malay states. Later, as the British started to take over as administrators of Malaya, rubber and palm oil trees were introduced for commercial purposes. Instead of relying on local Malays as a source of labour, the British brought in Chinese and Indians to work in the mines and plantations and provide professional expertise. Although many of them returned to their respective home countries after their agreed tenure ended, some remained in Malaysia and settled permanently. These three commodities along with other raw materials firmly set Malaysia's economic tempo well into the mid-20th century. As Malaya moved towards independence, the government began implementing economic five-year plans, beginning with the First Malayan Five Year Plan in 1955. Upon the establishment of Malaysia, the plans were re-titled and renumbered, beginning with the First Malaysia Plan in 1965.
Post-independence
Malaysia´s economic development was remarkable, given its troubled beginnings in the early 1960s and the ethnic partitions that were inherited from centuries of segmented economic development.
In the 1970s, Malaysia began to imitate the four Asian Tiger economies (South Korea, Taiwan, the then British Crown Colony of Hong Kong, and Singapore) and committed itself to a transition from being reliant on mining and agriculture to an economy that depends more on manufacturing. In the 1970s, the predominantly mining and agricultural based Malaysian economy began a transition towards a more multi-sector economy. Since the 1980s the industrial sector has led Malaysia's growth. High levels of investment played a significant role in this. With Japanese investment, heavy industries flourished and in a matter of years, Malaysian exports became the country's primary growth engine. Malaysia consistently achieved more than 7% GDP growth along with low inflation in the 1980s and the 1990s.
Central planning has been a major factor in the Malaysian economy, as government expenditure was often used to stimulate the economy. Since 1955, with the commencement of the First Malayan Five Year Plan, the government has used these plans to intervene in the economy to achieve such goals as redistribution of wealth and investment in, for instance, infrastructure projects.