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Exports and Innovation in Malaysia: the role of Heterogeneity

In both business and economics, innovation can be a catalyst for growth. Innovation increases the likelihood of business success, and an innovative country will demonstrate increased productivity and performance. Moreover, innovation is one of the factors that seem to be highly distinguishable between successful and less successful firms. The current rapid development of technology, increasingly fierce global competition and the shortening life cycles of products has increased the pressure on companies to innovate. Innovation is an instruction to introduce new ideas and, or products to the market. These new ideas lead to reducing costs, introducing faster or better processing systems, improving organizational structures and networks, and developing new systems. Therefore, it is not suprising that in terms of output (productivity and quality), profitability and growth, innovative companies and countries perform better than those that lack innovation. Malaysia, as a developing nation, has been investing heavily on innovation activities over the past two decades. Moreover, innovations, political stability, foreign direct investment inflows and export-oriented industrialization were among those factors that successfully transformed the country into a middle and high-income country. By 2014, Malaysia’s population had reached 29.2 million, and its GDP per capita, based on purchasing power parity, was US$17,748. It can be seen from the improvement of Malaysia’s Global Innovation Index (GII) score relative to the GDP that the country achieved major innovation achievement during the period 2011-2014. Besides, the outstanding innovation performance of Malaysia enabled it to obtain the highest GII record out of all of the countries with the same income level in 2014. Malaysia ranked 33rd in the 2014 GII, slightly lower than its 31st ranking in 2011. Malaysia’s rankings, in terms of innovation input, were 30th and innovation output was 35 in 2014. Article Info Abstract