Malaysia Campus

Nottingham University Business School

MBA Programmes

FINANCIAL AND MONETARY ECONOMICS (N1DM02)

Convenor : Professor Eduard J. Baumhoff

EU ZHIJING (UNIMKL 004151)

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ABSTRACT

This paper analyses the human capital development achieved in Malaysia and the

neighbouring countries of Indonesia, Philippines and Thailand by comparing trends over

time and between countries for health-care and education indicators. The conclusion is

that , among these four countries , Malaysia is the overall leader in human capital

development. However for certain human development metrics , Malaysia is

outperformed by other countries potentially due to either a time lag effect between the

investments and improved results or the effectiveness of the investment in reaching the

intended beneficiaries .The data also showed that all key human development indicators

have improved over time which suggests that the human development of these four

countries were not adversely impacted by the Asian crisis in 1997.

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CONTENTS

List of Tables...................................................................................................4

List of Figures.................................................................................................4

1) Introduction.................................................................................................5

2) Human capital development......................................................................6

3) Overview Of Macroeconomic Indicators...................................................7

4) Human Development................................................................................10

5) Health Care Sector....................................................................................12

6) Education Sector.......................................................................................15

7) Conclusion................................................................................................19

References :...................................................................................................20

Bibiliography.................................................................................................22

Word Count: 2498 Words (Main Text)

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List of Tables

Table 1: Human Development Index 1985-2005 ………………………………………10

Table 2: Selected Core Health Indicators ………………………………………………12

Table 3: Infant Mortality Rate ………………………………………………………….14

Table 4: Selected Education Indicators …………………………………………………15

Table 5: Adult Literacy Rate ……………………………………………………………16

Table 6: Education Enrollment Rates …………………………………………………..17

Table 7: Expansion of higher education as measured by gross enrolment ratios (%) ….17

List of Figures

Figure 1. GDP (USD Mil) 1996 – 2006 At Current Prices………………………………6

Figure 2. Per Capita GDP (USD Mil) 1996 – 2006 At Current Prices…………………..7

Figure 3. GDP Growth (Annual %) 1996 – 2006………………………………………..8

Figure 4. Life Expectancy At Birth , Total (Years ) 1992-2006………………………..13

4

1) Introduction

The development of human capital is an integral component in the economic

development of a country. The primary objective of this paper is to analyse the human

development achieved in Malaysia and its immediate neighbours - Indonesia, Philippines

and Thailand. This will be accomplished through the comparison of publicly available

data concerning the trends in specific health-care and education related metrics or

statistical indicators.

These four countries were chosen for the analysis because among the countries in the

South East Asia region, these four were the worst hit by the 1997 Asian Economic Crisis.

As a result of the crisis, the International Monetary Fund (IMF) initiated a series of

programmes to stabilize the currencies of Thailand, and Indonesia. At the same time

Philippines, which was already in an IMF programme at the start of the crisis, received

additional IMF financing. On the other hand, Malaysia resisted the efforts by IMF and

instituted its own currency control scheme.

Ten years later after the crisis, the economies of these countries have recovered .This

paper does not analyse the causes of the crisis or the subsequent recovery measures put in

place within these countries. However a secondary objective of this paper is to observe

any distinct relationship between the human capital development of these four countries

as a result of the economic downturn during the ASEAN crisis and the subsequent

recovery paths of the various country economies as measured by specific macroeconomic

indicators.

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2) Human capital development

According to Becker (p.25, 1993) there is a relationship between the amount of

investment in human capital to improve the level of schooling and training , medical

services and childcare ; and the quality of the workforce which ultimately contributes

towards economic progress within a country.

Economists often regard expenditures on education and medical care as investments in

human capital. The term “human capital” is used because people cannot be separated

from their knowledge, skills or health in the way they can be separated from their

financial and tangible assets.

A particular challenge in the analysis of human capital development and economic

progress is determining the appropriate proxies of the human capital to be used. For the

purpose of this paper, the proxies are determined on the basis of socio-economic

indicators available from the various publicly available sources.

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3) Overview Of Macroeconomic Indicators

The economies of the four countries have today fully recovered from the impact of the

1997 economic crisis as can be seen from Figure.1 and Figure 2 that shows respectively

the GDP at current prices and GDP per capita at current prices for each country over the

period of 1996 until 2006.

Of these four countries, the economy of Indonesia is the largest in terms of GDP value

and appears to be increasing in size and at a higher rate when compared to the other three

countries.

Figure 1. GDP (USD Mil) 1996 – 2006 At Current Prices

GDP (USD m) at current prices

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Malaysia

Indonesia

Philippines

Thailand

Source adapted from Asian Statistical Yearbook 2003 (ASEAN 2003) and Asian Statistical Yearbook 2006 (ASEAN 2006)

However, given its largest land mass and population it is unsurprising that the economy

of Indonesia is larger than the other three countries.

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When the GDP is normalized (using per capita GDP), Malaysia is shown as the most

developed followed by Thailand as shown in Figure 2.

While Malaysia and Thailand continue to maintain their relative per capita economic

position, the data also seemed to indicate that the per capita economic performance of

Indonesia has overtaken that of the Philippines from the period of 2002 until 2006.

Figure 2. Per Capita GDP (USD Mil) 1996 – 2006 At Current Prices

Per capita GDP (USD) at current prices

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Malaysia

Indonesia

Philippines

Thailand

Source adapted from Asian Statistical Yearbook 2003 (ASEAN 2003) and Asian Statistical Yearbook 2006 (ASEAN 2006)

8

As shown in Figure 3, on the basis of annual GDP growth, the economies of all four

countries appear to exhibit a very similar trend where all four economies went into a

recession in 1997/8 and recovered strongly over the following two years before a short

drop again in 2001 due to down turn in the US (resulting from the bursting of the dotcom

bubble). Following 2001, the GDP growth of all the countries improved gradually to a

steady rate of 4 to 6 %.

Figure 3. GDP Growth (Annual %) 1996 – 2006

Source adapted from World Bank Website (World Bank 2008)

By comparison to the other countries, Malaysia generally had a higher annual rate of

GDP growth but all four countries experienced a somewhat similar trend in terms of GDP

growth.

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4) Human Development

The United Nations Development Programme releases an annual report each year called

the Human Development Report. The Human Development Report includes within it a

metric called the Human Development Index (HDI) that assess and ranks a list of

countries by measuring a country’s performance in the sectors of education, life-

expectancy and Gross Domestic Product per capita in PPP terms to derive a single metric

with the aim of allowing for a comparative numerical assessment of country

achievements in areas of human development. A total of 177 countries were assessed in

the 2007/2008 HD report (UNDP 2007). A HDI score of 1 indicates a very high level of

human development.

Table 1 below is an extract of the HDI scores over a series of years that show that

Malaysia is leading the four countries in terms of human capital development. Indonesia

is the least developed based on the Human Development Index as a reliable measure of

human capital development.

A point worth noting is that the levels human capital development have steadily

improved and did not seem to have been severely impacted by the Asian Economic

Crisis.

Table 1: Human Development Index 1985-2005Country Human Development Index

1985(a) 1990(b) 1995(b) 2001(b) 2005(c)

Malaysia 0.692 0.721 0.759 0.790 0.811Indonesia 0.578 0.619 0.659 0.682 0.728Philippines 0.684 0.713 0.731 0.751 0.771Thailand 0.673 0.705 0.739 0.768 0.781

Source adapted from :a)Asean Statistical Yearbook 2003 (ASEAN 2003 )b)Asean Statistical Yearbook 2006 ( ASEAN 2006 ) c) Human Development Report 2007/2008 (UNDP 2007 )

Another observation is that although the per capita GDP of Indonesia has overtaken that

of Philippines over the past few years, the HDI score in 2005 suggests that Indonesia’s

human capital development still lags that of the Philippine.A possible explanation could

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be that the there is a significant time lag between investment in human capital

development and its impact on economic growth.

As the Human Development Index consists of three sub-component indices of GDP per

capita in Purhasing Parity Power terms, Life Expectancy and Education. For the purpose

of this paper, the next two sections lists both the HDI sub-component indices against

other key indicators that are not used directly in the HDI calculation to give a better

context to the human development differences between these four countries.

5) Health Care Sector

The World Heath Organization country health profile covers not only health services but

also nutrition, water supply and sanitation as well as health facilities/resources.

Based on data available from the WHO website, Table 2 was constructed and provides a

snapshot of some of these indicators for the four countries with the most current

information available as not all metrics were available for the same year.

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In 2004, all four countries made investments in the health sector that ranged between 2.8

% to 3.8 % of their total GDP values. Thailand appeared to have a higher proportion of

the public expenditure (as % of total government expenditure) on health care. One

possible reason for this could be the relatively larger public sector programmes in

Thailand than those from the private sector.

Table 2: Selected Core Health Indicators

Selected core health Malaysia Indonesia Philippines Thailand

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indicators (a)

HDI Life Expectancy Index 2005 (b) - rank (out of 177 countries)

- index630.811

1070.745

900.767

780.743

Per capita expenditure on health (USD)

180.1 (2004)

32.5 (2004)

36.1 (2004)

88.1 (2004)

Expenditure on health as % of GDP

3.8 % (2004)

2.8 % (2003)

3.4 % (2004)

3.5 % (2004)

Govt expenditure on health as % of general govt expenditure

7.5 %

(2004)

5.0 %

(2004)

6.3 %

(2004)

11.2 %

(2004)Hospital beds per 10,000 population

18 (2001)

6 (1998)

12 (2002)

22 (2000)

Physician per 1000 population

0.70 (2000)

0.13 (2003)

0.58 (2000)

0.37 (2000)

% of 1 year old immunized with DTP3

90 % (2005)

70 % (2005)

79 % (2005)

98 % (2005)

% of population with access to improved drinking water source - rural

96 % (2004)

69 % (2004)

82 % (2004)

100 % (2004)

% of population with improved access to sanitation - rural

93 %

(2004)

40 %

(2004)

59 %

(2004)

99 %

(2004)Source adapted from :(a) World Health Organisation Website (Note that the figures in bracket refers to the year of the latest available data) (World Bank 2008) (b) Human Development Report 2007/2008 (UNDP 2007)

Given Malaysia’s leading position in terms of per capita expenditure on health and

Human Development Index, the expectation is that Malaysia would clearly lead these 4

countries in the health care indicators. However, surprisingly Thailand generally

outperforms Malaysia especially in terms of rural population access to improved clean

drinking water sources and sanitation. However both Malaysia and Thailand are

significantly better off than Indonesia and Philippines when looking at the health

services.

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Investments in health-care should translate into improved lives. Figure 4 below shows the

life expectancy at birth in total years and Table 3 shows the infant mortality rate . Both

tables indicate an improvement over the past decade.

Malaysia ranked the highest amongst these four countries with Indonesia having the

worst performance. An unexpected trend is that although Thailand appears to have

invested more in the health sector (as per the indicators in Table 2) compared to

Philippines, its life expectancy is below that of Philippines. This could either be a time

lag issue or the Philippines quality of the investment is better.

Figure 4. Life Expectancy At Birth , Total (Years ) 1992-2006

Source adapted from World Bank Website (World Bank 2008)

Table 3: Infant Mortality Rate

Country Name 1998(a) 2000(a) 2003(b) 2004(b) 2005(b)

Malaysia 8 8 6.3 5.9 5.5Philippines 32 30 29 28 26Thailand 28 25 20 20 17Indonesia 43 35 39.5 39 38

Source adapted from :(a) ASEAN Statistical Yearbook 2003 (ASEAN 2003)(b) ASEAN Statistical Yearbook 2006 (ASEAN 2006)

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6) Education Sector

Similar to the previous section where a composite table was constructed, this section

draws heavily upon key statistics available from the United Nations Organization for

Education, Science and Culture Institute For Statistics website.Table 4 below is a

composite table that collects information available from the UNESCO website and

various other sources to provide a comprehensive picture of how the education spending,

facilities and resources vary among the four countries.

.

Table 4: Selected Education IndicatorsSelected education indicators

Malaysia Indonesia Philippines Thailand

HDI Education Index 2005 (a) - rank (out of 177 countries)

- index 630.839

900.888

1070.830

780.855

Govt expenditure on education as % of GDP per capita (b)

- primary- secondary

(2004)

14.6 %21.1%

(2000)

3.7 %7.3 %

(2004)

9.2 %9.0 %

(2004)

14.0 %15.5 %

Govt expenditure on education as % of general govt expenditure (b)

(2004)

25.2 % NA

(2004)

16.4 %

(2004)

26.8 % Annual expenditure on educational institute per student (PPP dollar) (c)

- primary- secondary

(2003)

1,8302,920

(2003)

92261

(2003)

500505

(2004/05)

3,4222,484

No of schools per 10,000 population (b)

- primary- secondary

(a) (2003)

2.90.8

NANA

NANA

(e) (2003)

5.11.6

No of teaching staff per 10,000 population (d)

- primary- secondary- tertiary

(2005)

715617

(2005)

646112

(2005)

452014

(2005)

493011

Pupil to teacher ratio (b)

- primary schools- secondary schools

(2000)19.617.3

(2004)20.112.3

(2004)34.537.5

(2000)20.8NA

2005 Population (‘000) 25,347 222,781 83,054 64,233

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Note that the figures in bracket refers to the year of the latest available data Source adapted from :a) Human Development Report 2007/08 (UNDP 2007)b)United Nations Economic and Social Commission for Asia and the Pacific(UNESCAP), Statistical Yearbook 2007 ( UNESCAP 2007)c)United Nations Organization for Education, Science and Culture (UNESCO), UNESCO Institute for Statistics 2007 (UNESCO 2008) d) UNESCO Education For All Global Monitoring Report 2005 (UNESCO 2005)

In 2004, the Malaysian and Thai governments invested relatively higher amounts of

expenditure in education than Indonesia and Philippines. Sensibly, the higher investments

in education should translate into higher literacy rates as well as higher school

enrollment.

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However, Table 5 seems to indicate that the adult literacy rate in Malaysia,

despite its better economic performance (and possibly higher expenditure in

education), is lower than that of Philippines and Thailand up till the year of

2004.

Table 5: Adult Literacy Rate

Country Name Gender 1990(a) 1995(a) 1998(a) 1999(a) 2000(b) 2003(b) 2004(b)

Malaysia

M 87.0 89.5 90.7 91.1 92.0 89.3 95.6F 74.6 79.4 82.0 82.8 85.4 81.9 93.2

Diff M-F 12.4 10.1 8.7 8.3 6.6 7.4 2.4Average 80.8 84.5 86.4 87.0 88.7 85.6 94.4

Philippines

M 93.1 94.4 95.1 95.3 92.5 92.5 94.5F 92.0 93.8 94.6 94.9 95.7 93.9 95.7

Diff M-F 1.1 0.6 0.5 0.4 -3.2 -1.4 -1.2Average 92.6 94.1 94.9 95.1 94.1 93.2 95.1

Thailand

M 95.6 96.4 96.9 97.0 97.2 97.5 98.1F 91.2 92.0 93.2 93.5 94.0 94.6 97.8

Diff M-F 4.4 4.4 3.7 3.5 3.2 2.9 0.3Average 93.4 94.2 95.1 95.3 95.6 96.1 98.0

Indonesia

M 89.6 91.3 93.0 91.5 91.9 93.5 94.0F 78.7 81.4 83.0 81.3 82.1 86.2 86.8

Diff M-F 10.9 9.9 10.0 10.2 9.8 7.3 7.2Average 84.2 86.4 88.0 86.4 87.0 89.9 90.4

Source adapted from: (a) ASEAN Statistical Yearbook 2003 (ASEAN 2003)(b) ASEAN Statistical Yearbook 2006 (ASEAN 2006) Also it is worth noting that Philippines and Thailand have a smaller gender gap for adult

literacy rates than both Indonesia and Malaysia. Even for tertiary education, it was

reported that in 2001, the Minister of Education of Malaysia revealed that the female to

male ratio at public universities was 65:35 (UNESCO 2006)

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In terms of school enrollment as per Table 6, the primary school enrollment rates are

about similar for the four countries. However, in the secondary school enrollment rates

Malaysia has a much higher figure than the other countries.

Table 6: Education Enrollment Rates

Source adapted from Human Development Report 2007/08 (UNDP 2007)

Tertiary enrollment rates in Table 7 show a trend that differs from the secondary

education enrollment rate in that Malaysia lags behind Thailand and Philippines.

However a UNESCO (2006) report noted that among the South-East Asian countries,

Malaysia had the most developed transnational higher education system involving the

opening of branch campuses of foreign educational institutions of higher learning.

Therefore the latest figures although currently unavailable may eventually turn out to

indicate a vastly improved trend for Malaysia.

Country School Enrollment RatesNet primary rate (%) Net secondary rate (%)1991 2005 1991 2005

Malaysia 95 76Indonesia 97 96 39 58Philippines 96 94 61Thailand 76 88 64

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Source adapted from Higher Education in South-East Asia Report (UNESCO 2006)

7) ConclusionResearch in the field of human development in the Asian context generally concludes that

there is a relationship between human capital development and GDP growth.

In conclusion, the indicators reviewed in this paper show that Malaysia, with its higher

per capita GDP and economic growth, is the overall leader in human capital

development. Theoretically, the expenditure on health and education services should

translate into a healthy and educated workforce that in turn would drive stronger

economic growth.

However, the absolute numerical values of the investment in health and education should

not be interpreted as a direct forecast of improvements in the quality of life; since factors

such as geographical and demographic allocation and access influence the efficiency and

effectiveness of these investments on human capital. It must be noted that are substantial

variations in the time lag between initial implementation of the said investments and the

final results reflected in tangible improvements in economic growth indicators from

country to country.

This time lag may help to account for some of apparent incongruities where Malaysia

lags behind some of its neighbouring countries despite larger investments in human

capital development.

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Another trend that can be observed from the data to date is that the human capital

development of these four countries has not been adversely impacted by the Asian crisis;

as key indicators outside the Human Development Indices have also steadily improved

over time for all four countries.

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References :

Association of South East Asian Nations (ASEAN) (2003) ASEAN Statistical Yearbook 2003, Website of Association of SouthEast Asian Nations (ASEAN) Available from : http://www.aseansec.org/pdf/ASEAN_statistical2003.pdf [Accessed 20th April 2008 ]

Association of South East Asian Nations (2006) ASEAN Statistical Yearbook 2006, Website of Association of SouthEast Asian Nations (ASEAN) Available from : http://www.aseansec.org/ASY2006.exe [Accessed 20th April 2008 ]

Becker, G.S (1993) Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education 3 rd Edition , Chicago, University of Chicago Press

United Nations Development Program (UNDP) (2007) Human Development Report 2007/2008 , Website of the United Nations Development Program (UNDP) Available from : :http://hdr.undp.org/en/media/hdr_20072008_en_complete.pdf [Accessed 21st April 2008 ]

United Nations Economic and Social Commision For Asia And The Pacific (ESCAP) (2008) Statistical Yearbook for Asia and the Pacific 2007, Website of United Nations Economic and Social Commision For Asia And The Pacific (ESCAP) Available from:

http://www.unescap.org/stat/data/syb2007/ESCAP-SYB2007.pdf [Accessed 18th April 2008 ]

United Nations Organization for Education, Science and Culture (UNESCO) (2005) Education For All (EFA) Global Monitoring Report 2005, Website of the United Nations Organization for Education, Science and Culture (UNESCO) Available from: http://portal.unesco.org/education/en/ev.php-URL_ID=36027&URL_DO=DO_TOPIC&URL_SECTION=201.html [Accessed 18th April 2008 ]

United Nations Organization for Education, Science and Culture (UNESCO) Asia-Pacific Programme of Educational Innovation for Development (2006) Higher Education in South-East Asia Report Available from: http://unesdoc.unesco.org/images/0014/001465/146541e.pdf [Accessed 17th April 2008

United Nations Organization for Education, Science and Culture (UNESCO) (2008) UNESCO Institute for Statistics, Custom Tables Tool , Website Of United Nations Organization for Education, Science and Culture (UNESCO) Available from: http://stats.uis.unesco.org/unesco/TableViewer/document.aspx?ReportId=136&IF_Language=eng&BR_Topic=0 [Accessed 23rd April 2008 ]

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World Bank (2008) Quick Query Selected From World Development Indicators Tool ,Website Of The World Bank Group Available from: http://ddp-ext.worldbank.org/ext/DDPQQ/member.do?method=getMembers&userid=1&queryId=135 [Accessed 22nd April 2008 ]

World Health Organisation (WHO) (2008) WHO Statistical Information System , Website Of World Health Organisation (WHO) Available from :http://www.who.int/whosis/database/core/core_select.cfm[Accessed 22nd April 2008 ]

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Bibiliography

Amin, M. & Mattoo, A. (2008) Human Capital and the Changing Structure of the Indian Economy - Policy Research Working Paper, World Bank Development Research Group Available from :http://www.enterprisesurveys.org/documents/Human_Capital_and_change_structure.pdf [Accessed 22nd April 2008 ]

Andreosso-O’Callaghan , B. (2002) Human Capital Accumulation and Economic Growth in Asia, National Europe Centre Paper No. 30 Paper prepared for the Workshop on Asia-Pacific Studies in Australia and Europe: A Research Agenda for the Future, Australian National University Available from : http://www.anu.edu.au/NEC/Archive/andreosso.pdf [ Accessed 20th April 2008]

van Leeuwen, B. (2007) Human Capital and Economic Growth in India, Indonesia and Japan, A quantitative analysis 1890 – 2000 , Proefschr, Utrecht.

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