Chapter 5 assesses Malaysia’s transition from factor-driven to productivity-led growth during the upper-middle-income period, revealing sluggish total factor productivity improvements and stagnating industrial upgrading compared to high-income achievers like South Korea. The analysis identifies structural challenges, including the resource curse, dependence on multinational corporations, aging management in local firms, and brain drain, that have hindered the shift toward exporting sophisticated capital goods and parts. Despite these obstacles, the chapter demonstrates how Malaysia’s competitive authoritarian system has gradually enabled policy shifts toward meritocracy and governance reform through electoral pressures, though progress remains uneven and subject to political reversals.