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Malaysia is a developing country located in South East Asia. Malaysia has a rich natural-resource base and is a trade-oriented society. Between 1960 and 1990, Malaysia's GDP increased more than seven fold and per capita income also increased considerably. The relative importance of sectoral shares of output and employment shifted from the primary (agricultural) sector towards the secondary and tertiary sectors. The objective of this study is to investigate the factors that have contributed to the rapid development of the Malaysian economy and, thus, determine how the Malaysian economy has been transformed from a low level equilibrium to a high level, thriving economy. It is proposed that government policies, particularly for trade, are behind the growth in output and sectoral development. To investigate this hypothesis, the following four steps are undertaken: The first step involves an extensive review of literature for alternative perspectives on development. Second, an investigation of Malaysian development plans and objectives for the period of the analysis is undertaken, particularly for the 1970s and beyond. These are analyzed from short-run as well as long-run perspectives. Expenditures allocated by national development plans to the different sectors of the economy are also analyzed. Third, to determine what factors affected growth and development, empirical analyses are applied to determine the significance of alternative policy orientations. Fourth, to determine the consequences of structural change, the sectoral performances are analyzed. It seems that the Malaysian policymakers have influenced the growth of output and sectoral development significantly. Also, empirical evidence suggests that the outward development strategy has been a more potent stimulant to the Malaysian economy than an inward development policy. This study enhances our knowledge of factors that are important to the process of development and how policymakers can cope with and adjust to changing socioeconomic conditions.