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Premature deindustrialization in Malaysia: Implications for structural transformation and digital economy development
Vol 4, Issue 5, 2026
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Abstract
This study examines the extent and implications of premature deindustrialization in Malaysia by analyzing long-term trends in value-added, employment, and industry-specific competitiveness. Malaysia’s manufacturing share began to decline in the early 2000s, when income levels were significantly lower than in developed countries, exhibiting a typical pattern of premature deindustrialization. With China emerging as a global manufacturing hub and Malaysia still relying on low-value-added segments of global value chains, competitiveness is declining in several key industries. As a result, employment is shifting to traditionally less productive service sectors, raising concerns about slower long-term productivity growth, wage stagnation, and widening social inequality, particularly among low-skilled and vulnerable groups. However, the rapid advancement of digitalization and the expansion of modern service industries such as ICT software, finance, and logistics are simultaneously reinterpreting the very concept of deindustrialization. As production processes become service-intensive and digitally integrated, a decline in the manufacturing share does not necessarily mean a weakening of the overall economy. The results of this study indicate that inclusive digital transformation is essential for Malaysia’s transition to a service and knowledge economy, requiring equitable access to digital skills, infrastructure, and economic opportunities for all regional and social groups. A balanced strategy that simultaneously strengthens manufacturing capabilities and promotes inclusive and sustainable digital development is a prerequisite for achieving long-term social progress without creating new inequalities during a period of structural transformation.
Keywords
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Supporting Agencies
This research was supported by the Japan Society for the Promotion of Science (JSPS) KAKENHI, Grant‑in‑Aid for Scientific Research (C), Project No. 24K15445
Copyright (c) 2026 Karikomi Shunji
This work is licensed under a Creative Commons Attribution 4.0 International License.
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Prof. Kittisak Wongmahesak
North Bangkok University (Thailand)
It is with deep regret that we announce the cancellation of the Forum on Sustainable Social Development & Computing and Artificial Intelligence, originally scheduled for June 15, 2025.
