Abstract
A large difference in income today among East Asian countries was brought about mainly by different economic growth rates in the second half of the twentieth century. How do we explain this difference? Neoclassical economists would argue that it was due to difference in the rates of capital formation and export growth. This is true, but the question still remains as to why they differed. This paper, focusing on Malaysia, explains its relative performance in terms of institutions and culture. Due to the growing influence of neo-institutionalists, institutions have been gaining importance, but culture is still an unpopular subject among the social scientists who are looking at the cause of development. But if we ignore it, it is difficult to explain the better economic performance of South Korea vis-à-vis Malaysia (or more generally, Northeast Asian countries vis-à-vis Southeast Asian countries). Of course, culture is not the only explanatory variable. Neo-institutionalists are right in emphasizing the importance of institutions. For example, the better performance of Malaysia vis-à-vis the Philippines and Indonesia seems to be largely due to the fact Malaysia could make its institutions more favorable to economic growth. But we also have to recognize the fact that culture influences people's economic decision, shapes institutions, and mediates their effect on economic growth.
