This Working Paper shows how dependent the Malaysian economy is on the fluctuating fortunes of its trading partners, particularly in the Organisation for Economic Co-operation and Development (OECD) countries. There is no suggestion here that Malaysia should reverse its outward-looking, export policy, for such a reversal would not be in its long-term interest, given its factor and resource endowments and the constraints of the domestic market. However, the paper argues that there is a need for Malaysia to respond positively to the challenges of the 1980s by restructuring its own economy in line with the shifting pattern of comparative advantage and, by actively seeking new markets for its products, reducing its overdependence on the markets of the industrialised countries.