Malaysia Campus

Nottingham University Business School

MBA Programmes

FINANCIAL AND MONETARY ECONOMICS (N1DM02)

Convenor : Professor Eduard J. Baumhoff

EU ZHIJING (UNIMKL 004151)

1
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.

2
CONTENTS
List of Tables ......................................................................................................................4

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

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

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

............................................................................................................................................6

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

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

5) Health Care Sector.........................................................................................................14

6) Education Sector............................................................................................................18

7) Conclusion.....................................................................................................................24

References :.......................................................................................................................26

Bibiliography.....................................................................................................................28

Word Count: 2498 Words (Main Text)

3
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.

5
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.

6
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

400,000
350,000
Malaysia
300,000
Indonesia
250,000
Philippines
200,000 Thailand
150,000
100,000
50,000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

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

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However, given its largest land mass and population it is unsurprising that the economy
of Indonesia is larger than the other three countries.

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

7,000

6,000

5,000
Malaysia
4,000 Indonesia
3,000 Philippines
Thailand
2,000

1,000

0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

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

9
 GDP growth (annual % )

15
GDP growth (annual%)

10
5 Malaysia
Philippines
0
Thailand
YR1996

YR1997

YR1998

YR1999

YR2000

YR2001

YR2002

YR2003

YR2004

YR2005

YR2006
-5 Indonesia
-10
-15
Year

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.

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

10
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 1985-2005

Country Human Development Index

1985(a) 1990(b) 1995(b) 2001(b) 2005(c)
Malaysia 0.692 0.721 0.759 0.790 0.811
Indonesia 0.578 0.619 0.659 0.682 0.728
Philippines 0.684 0.713 0.731 0.751 0.771
Thailand 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 )

11
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
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.

12
13
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.

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.

14
Table 2: Selected Core Health Indicators

Selected core health Malaysia Indonesia Philippines Thailand

indicators (a)
HDI Life Expectancy
Index 2005 (b)
- rank (out of 177 countries) 63 107 90 78
- index 0.811 0.745 0.767 0.743
Per capita expenditure on 180.1 32.5 36.1 88.1
health (USD) (2004) (2004) (2004) (2004)
Expenditure on health as 3.8 % 2.8 % 3.4 % 3.5 %
% of GDP (2004) (2003) (2004) (2004)
Govt expenditure on 7.5 % 5.0 % 6.3 % 11.2 %
health as % of general
govt expenditure (2004) (2004) (2004) (2004)
Hospital beds per 10,000 18 6 12 22
population (2001) (1998) (2002) (2000)
Physician per 1000 0.70 0.13 0.58 0.37
population (2000) (2003) (2000) (2000)
% of 1 year old 90 % 70 % 79 % 98 %

15
immunized with DTP3 (2005) (2005) (2005) (2005)
% of population with
access to improved
drinking water source - 96 % 69 % 82 % 100 %
rural (2004) (2004) (2004) (2004)
% of population with 93 % 40 % 59 % 99 %
improved access to
sanitation - rural (2004) (2004) (2004) (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.

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

16
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

Life expectancy at birth, total (years)

Life expectancy at birth,

76
74
total (years)

72 Malaysia
70 Philippines
68 Thailand
66 Indonesia
64
62
1991
1992
1993
1994
1995

2002
2003
2004
2005
1996
1997
1998
1999
2000
2001

2006
2007
Year

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

Source adapted from :

(a) ASEAN Statistical Yearbook 2003 (ASEAN 2003)
(b) ASEAN Statistical Yearbook 2006 (ASEAN 2006)

17
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 Indicators

Selected education Malaysia Indonesia Philippines Thailand

indicators
HDI Education Index 2005
(a)

- rank (out of 177 countries) 63 90 107 78

- index 0.839 0.888 0.830 0.855
Govt expenditure on (2004) (2000) (2004) (2004)
education as % of GDP per
(b)
capita
- primary 14.6 % 3.7 % 9.2 % 14.0 %
- secondary 21.1% 7.3 % 9.0 % 15.5 %
Govt expenditure on (2004) (2004) (2004)
education as % of general
(b)
govt expenditure 25.2 % NA 16.4 % 26.8 %
Annual expenditure on (2003) (2003) (2003) (2004/05)
educational institute per
(c)
student (PPP dollar)
- primary 1,830 92 500 3,422
- secondary 2,920 261 505 2,484
No of schools per 10,000 (a) (2003) (e) (2003)
(b)
population
- primary 2.9 NA NA 5.1
- secondary 0.8 NA NA 1.6
No of teaching staff per (2005) (2005) (2005) (2005)

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 (d)
10,000 population
- primary 71 64 45 49
- secondary 56 61 20 30
- tertiary 17 12 14 11
(b)
Pupil to teacher ratio (2000) (2004) (2004) (2000)
- primary schools 19.6 20.1 34.5 20.8
- secondary schools 17.3 12.3 37.5 NA
2005 Population (‘000) 25,347 222,781 83,054 64,233

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)
1.
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.

19
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)
M 87.0 89.5 90.7 91.1 92.0 89.3 95.6
F 74.6 79.4 82.0 82.8 85.4 81.9 93.2
Malaysia
Diff M-F 12.4 10.1 8.7 8.3 6.6 7.4 2.4
Average 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 94.5
F 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 -1.2

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 Average 92.6 94.1 94.9 95.1 94.1 93.2 95.1
M 95.6 96.4 96.9 97.0 97.2 97.5 98.1
F 91.2 92.0 93.2 93.5 94.0 94.6 97.8
Thailand
Diff M-F 4.4 4.4 3.7 3.5 3.2 2.9 0.3
Average 93.4 94.2 95.1 95.3 95.6 96.1 98.0
M 89.6 91.3 93.0 91.5 91.9 93.5 94.0
F 78.7 81.4 83.0 81.3 82.1 86.2 86.8
Indonesia
Diff M-F 10.9 9.9 10.0 10.2 9.8 7.3 7.2
Average 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)

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.

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Table 6: Education Enrollment Rates

Country School Enrollment Rates

Net primary rate (%) Net secondary rate (%)
1991 2005 1991 2005
Malaysia 95 76
Indonesia 97 96 39 58
Philippines 96 94 61
Thailand 76 88 64

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.

22
Source adapted from Higher Education in South-East Asia Report (UNESCO 2006)

23
7) Conclusion
Research 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.

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.

24
25
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 3rd 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 ]

26
• 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 ]

27
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_struct
ure.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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