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This study utilizes the standard growth accounting model to estimate Total
Factor Productivity (TFP) growth for Malaysian manufacturing industries
during 1982-1997 which includes two cyclical sub-periods 1982-1986 and 1987-
1997. The estimates show high TFP growth among the heavy industries as
compared to the medium and light industries. The average TFP growth for the
manufacturing sector as a whole was found to be negative during 1982-1986.
However, it improved in the second sub-period of 1987-1997 and recorded
positive annual growth of 4.05 percent. This improvement presumably reflects
to some extent the success of government policy changes which have taken
place since 1985. Still, the growth of the Malaysian manufacturing sector was
governed by the input-driven growth rather than the productivity-driven
growth.
JEL classification: D24
Key words: Total factor productivity, Heavy industry, Government policy
1. INTRODUCTION
The growth of an economy is governed by two distinct sources of
growth that is, input? driven and productivity? driven. The input? driven
IIUM Journal of Economics and Management 12, no.2 (2004):
© 2004 by The International Islamic University Malaysia
2 IIUM Journal of Economics & Management 12, no.2 (2004)
growth is achieved through the increase in factors of production which
is inevitably subjected to diminishing returns and is not sustainable in
the long run (Young, 1992; Krugman, 1994 and Kim and Lau, 1994).
The productivity-driven growth is the growth in output that cannot be
explained by the growth in total inputs. It is normally attributed to the
advancement of knowledge or technology, efficient use of fa ...