Economics of shared production
KUALA LUMPUR: The recent debate over whether Penang historically “belongs” to Kedah illustrates how easily discussions of federalism can conflate fundamentally different questions.
The debate over Penang's historical ties to Kedah highlights the need to distinguish between constitutional and economic aspects of federalism. While states have distinct legal authority, the economy often transcends political boundaries. In Malaysia, this is evident in the Penang-Kedah industrial corridor, where both states contribute unique assets.
Penang boasts a mature electrical and electronics ecosystem, driven by multinational investment, engineering talent, and supplier networks. Meanwhile, Kedah offers industrial land, expanding high-technology capacity, and opportunities for scale. Their combined strength lies in the synergies between these assets rather than competing over historical claims.
Malaysia currently plans its economy through administrative jurisdictions, with investment statistics reported by state and industrial parks confined to specific boundaries. However, production networks operate differently, with engineers, suppliers, and components potentially spanning multiple states. This misalignment can lead to inefficient resource allocation and missed opportunities for regional competitiveness.
Trade data reveal that Penang already serves as Malaysia's largest exporting state, while Kedah contributes significantly to the country's trade openness index. Despite these economic interconnections, Malaysia lacks a comprehensive understanding of how value moves between regions. Investing more in understanding internal production integration could yield substantial benefits.
Instead of viewing states as competitors, Malaysia should focus on creating regional competitiveness. This means recognizing that each state specializes in its comparative advantage while leveraging neighboring capabilities. For the Penang-Kedah corridor, this entails establishing a Northern Regional Production Council to coordinate industrial land, supply chains, transport, and skills development.
Such a council would address critical areas like talent acquisition, infrastructure development, and logistics networks. Regional Input-Output tables, which track how goods and services flow between industries, would provide valuable insights into the economic interdependencies between states. With this information, policymakers can make informed decisions about investment, infrastructure, and skills planning, ultimately maximizing value capture for Northern Malaysia.
Written by urgent.news from New Straits Times's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
