Malaysia is a growing and relatively open economy. In 2007, the economy of Malaysia was the 29th largest economy in the world by purchasing power parity with gross domestic product for 2007 was estimated to be $357.9 billion with a growth rate of 5% to 7% since 2007 The Southeast Asian nation experienced an economic boom and underwent rapid development during the late 20th century. With a GDP per capita standing at US$14,400, it has, from time to time, been considered a newly industrialized country. On the income distribution, there are 5.8 million households in 2007. Of that, 8.6% have an monthly income below RM1,000, 29.4% had between RM1,000 and RM2,000, while 19.8% earned between RM2,001 and RM3,000; 12.9% of the households earned between RM3,001 and RM4,000 and 8.6% between RM4,001 and RM5,000. Finally, around 15.8% of the households have an income of between RM5,001 and RM10,000 and 4.9% have an income of RM10,000 and above.
As one of three countries that control the Strait of Malacca, international trade plays a large role in its economy. At one time, it was the largest producer of tin, rubber and palm oil in the world. Manufacturing has a large influence in the country's economy.
Malaysia is an important trading partner for the United States. In 1999, two-way bilateral trade between the U.S. and Malaysia totaled U.S. $30.5 billion, with U.S. exports to Malaysia totaling U.S.$9.1 billion and U.S. imports from Malaysia increasing to U.S.$21.4 billion. Malaysia was the United States' 10th-largest trading partner and its 12th-largest export market. During the first half of 2000, U.S. exports totaled U.S.$5 billion, while U.S. imports from Malaysia reached U.S.$11.6 billion.
The Malaysian Government encourages Foreign Direct Investment (FDI). According to Malaysian statistics, in 1999, the U.S. ranked first among all countries in approved FDI in Malaysia's manufacturing sector with approved new manufacturing investments totaling RM5.2 billion (US$1.37 billion). Principal U.S. investment approved by the Malaysian Investment Development Authority (MIDA) was concentrated in the chemicals, electronics, and electrical sectors. The cumulative value of U.S. private investment in Malaysia exceeded $10 billion, 60% of which is in the oil and gas and petrochemical sectors with the rest in manufacturing, especially semiconductors and other electronic products.
In the first six months of 2007, Malaysia's total trade increased by 2.2% to RM522.38 billion, compared with RM511.11 billion in the same period of 2006.
Malaysia is the founding member of the ASEAN Free Trade Area which was established in 1992 to promote trade among ASEAN members. Most tariffs among the first generation member states were scrapped in 2007. ASEAN itself is increasingly playing a large role in free trade negotiation on behalf of its members. ASEAN as a group hopes to establish a free trade agreement with the European Union by 2009.
The Malaysian Government is negotiating free trade deals with Australia, New Zealand, United States, Chile and India. Officials have expressed desire for free trade agreements their ASEAN members Singapore and Thailand. The Malaysian Trade Ministry released a statement in Vietnam saying that the FTA "has the potential to increase trade, investment cross flows and economic cooperation between the two countries. The agreement would also serve to make Chile a gateway for Malaysia's exports to the Latin American market."
Malaysia signed a Japan-Malaysia Economic Partnership Agreement with Japan on 13 December, 2005. This leads to a Free trade agreement which was in effect from 13 July, 2006 and expected to be fully realized in 2016. The agreement itself is an extension of an FTA between ASEAN and Japan, which is called Asean-Japan Comprehensive Economic Partnership.
On 8 November, 2007, Malaysian and Pakistan signed a bilateral Free Trade Agreement which will come in force on 1 January, 2008. Malaysia will cut tariffs on 140 lines while Pakistan will cut 124 lines. Most tariffs and duty is expected to be eliminated by 2012.
Other conutries that showing interest to establish a free trade agreement with Malaysia are the European Union and Hong Kong. However, before any talks can be made regrading the FTA, Joint Economic Cooperation deal has to be inked and signed first. International Trade and Industry Minister, Tan Sri Muhyiddin Yassin hope that talks will be concluded by end of 2008