Title: Estimating the welfare loss due to vehicle tariffs in Malaysia

Authors: Daniel Borer; Kock Lim Tan; Brian Chua Tatt Shen

Addresses: RMIT University, Ho Chi Minh City, 700000, Vietnam ' UOW Malaysia KDU Penang, George Town 10400 Penang, Malaysia ' King's College, WC2R-2LS London, UK

Abstract: The Malaysian Government initiated domestic automobile production in 1985, paired with hefty tariffs on imported vehicles to protect the growing industry, using the infant industry argument as underlying. To gain empirical knowledge on the effectiveness of the infant industry argument for the automobile industry, the cases of Japan, South Korea and Spain are briefly analysed. The findings suggest that the Malaysian Government has failed to implement the infant industry type policies successfully. Additionally, the welfare cost of protecting the Malaysian vehicle industry is calculated using a Harberger triangle welfare loss analysis. The welfare loss is estimated for the year 2017 at MYR 11.3 b (US$2.8 b). It is suggested that the benefits of keeping the protectionist measures are too small to justify the costs. To close the article, policy recommendations are presented to reduce the welfare loss by gradually opening the sector up to international competition.

Keywords: empirical studies of trade; Malaysia; Spain; Japan; automobile industry; tariffs; welfare loss; Harberger triangle; infant industry.

DOI: 10.1504/IJATM.2021.113365

International Journal of Automotive Technology and Management, 2021 Vol.21 No.1/2, pp.137 - 160

Received: 20 Sep 2019
Accepted: 09 Sep 2020

Published online: 01 Mar 2021 *

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