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When electronics manufacturers go to Malaysia, they do not stop in the national capital, Kuala Lumpur, but fly directly to production sites in a distant province, Penang. This small state, near Thailand, with a population of some 1.5 million, has established a reputation as a dynamic hub for technology-intensive goods such as semiconductors and hard disk drives. Penang has created an environment that seems different ? and slightly separate ? from the rest of the country. Investors here do not liaise with the federal government, but rather state government agencies for incentives, permits, and licences. They source components, design work, or labour from a variety of dynamic firms nearby, and send their products via local airports or the Internet.

“ Developmental” States and Economic Growth at the Sub-National Level: The Case of Penang