How a Semiconductor Boom Can Help Malaysia Escape ‘Middle-Income Trap’

In the heart of Southeast Asia, Malaysia is emerging as a powerhouse in the global semiconductor industry. With multinational tech giants like Nvidia, Intel, Microsoft, and Google making massive investments in the country, Malaysia is shifting from a stable middle-income nation to a potential high-income tech hub. This influx of foreign direct investment is more than just a short-term economic boost; it may hold the key to helping Malaysia escape the much discussed “middle-income trap” and accelerating its transition to high-income country status.

Understanding the ‘middle-income trap’

The “middle-income trap” occurs when a country achieves a certain level of income through traditional means like cheap labor, resource exports, or basic manufacturing, but then fails to transition to innovation-driven, high-value-added growth. Malaysia has long been caught in this predicament. While its economy has shown resilience and steady progress, it has struggled to break into high-income status.

This structural challenge isn’t unique to Malaysia. As highlighted in the 2024 Emerging Market Multinationals Report by Cornell’s Emerging Markets Institute, many emerging economies find themselves needing to “transform from periphery to powerhouse” through innovation and industrial upgrading. The report notes, “The transformation of emerging economies since the turn of the century has triggered a significant shift in global economics, business and geopolitics. … A critical driver of this transformation has been innovation, with the digital revolution acting as a game changer.”

The semiconductor surge

Semiconductors are the backbone of modern technology. As the world becomes increasingly digital and adoption of AI accelerates, demand for chips is skyrocketing. Malaysia, with its strategic location and English-speaking, tech-savvy workforce, has emerged as a strategic hub for advanced manufacturing and high-tech production.

Recent developments have been transformative. Nvidia is constructing a $4.3 billion AI data center; Intel and Infineon are expanding their production capacities; and Texas Instruments is establishing new assembly plants. These investments are not only building physical infrastructure, but also fostering a high-value ecosystem of innovation and research and development.

Rafizi Ramli, economic minister, recently announced a $250 million agreement with ARM Holdings allowing Malaysian companies to access cutting-edge chip design blueprints. The goal is to develop homegrown chips within a decade, strengthening the domestic tech ecosystem.

Prime Minister Anwar Ibrahim has also been vocal about Malaysia’s ambition to secure over $100 billion in investments focused on integrated circuit design, advanced packaging, and semiconductor manufacturing equipment.

Bridging the talent gap

While the inflow of capital and technology is promising, the success of Malaysia’s semiconductor aspirations hinges on talent. The industry demands a skilled labor force—engineers, researchers, and technicians who can keep pace with rapid innovation.

The Board of Directors Forum at Cornell Tech underscores the critical role of effective leadership and governance in driving innovation and economic growth. This program brings together experienced professionals and industry leaders to discuss strategies for navigating complex business landscapes and promoting entrepreneurial ventures. By adopting similar initiatives that emphasize strong leadership and strategic governance, Malaysia can cultivate a new generation of tech entrepreneurs and innovators, ensuring that the nation not only participates in the global semiconductor industry, but also leads in technological advancements.

Malaysia has already taken meaningful steps in this direction. The government plans to train 60,000 semiconductor engineers. However, addressing “brain drain” remains crucial. Malaysia must invest highly in the education sector and create attractive job opportunities and equal employment opportunities to retain its brightest minds. Incentivizing entrepreneurship and innovation at home by introducing business-friendly policies could prove just as important as bringing in foreign investment.

Wong Siew Hai, president of the Malaysia Semiconductor Industry Association, highlighted the need for a workforce with specialized experience, a key bottleneck in the country’s ambition to scale up its tech capabilities.

Geopolitics and strategic positioning

Malaysia’s geography places it at the center of global trade routes and at the nexus of US-China tensions. The semiconductor industry is a strategic chess piece in this geopolitical game. While the U.S. remains a major investor, China is Malaysia’s largest trading partner.

To navigate this landscape, Malaysia will need a delicate diplomatic balancing act. Policies must be flexible yet firm, encouraging investment from both sides while safeguarding national interests. Establishing neutral ground for tech collaboration could enhance Malaysia’s global standing and mitigate risks.

Recent proposals by U.S. President Donald Trump to impose tariffs on semiconductors could also have ripple effects. Malaysia, which exported over $16 billion in chips to the U.S. last year, may face a decline in export revenue and potential supply chain reconfigurations. Tengku Zafrul Aziz, minister of trade in Malaysia, noted that the government is in discussions with semiconductor companies to assess the magnitude of the tariffs and determine whether costs would be absorbed by businesses or passed on to consumers.

Infrastructure, inclusion, and internal challenges

The rapid expansion of tech sectors has put pressure on domestic infrastructure and social systems in Malaysia. Industrial and technological hubs like Penang are facing rising property costs and urban congestion. Ensuring equitable development from improved public transport to affordable housing will be critical.

Malaysia must also maintain political stability to reassure investors. The successful execution of the country’s New Industrial Master Plan 2030 hinges on consistent, transparent governance. A strong regulatory framework and a stable political climate are prerequisites for sustainable success.

A vision for the future

The semiconductor boom presents Malaysia with an opportunity not just to climb the income ladder, but to redefine its economic identity. Inclusive growth, strategic diplomacy, and long-term planning can help translate today’s investments into sustainable prosperity.

For Malaysians, this moment is about more than chips and circuits. It’s about building a future where innovation thrives and where opportunities abound for all. If seized wisely, the semiconductor revolution could become Malaysia’s launchpad into a high-income, high-tech future.

About the author

Jordan Yip Zhu Ern, MSBA ’25 is a Malaysian-born finance professional earning a master’s in business analytics at the Samuel Curtis Johnson Graduate School of Management at Cornell University. He is also a research fellow at the Emerging Markets Institute. A former NCAA Division I swimmer and national athlete for Malaysia, he holds a dual degree in accounting and finance from the University of South Carolina. He has experience in investment banking, real estate, and wealth management. Passionate about Southeast Asia’s evolving role in the global economy, he enjoys writing at the intersection of politics, economics, and finance. He is also a proud foodie and avid Formula One and soccer fan.