This paper examines the two sources of total factor productivity growth (TFP), namely technological progress (TP) and technical efficiency (TE) in the Malaysian manufacturing sector. This sector’s TFP growth was found to be below 1.5 per cent over 1970–2002, and while TE was negative, TP although positive was decreasing over time. Factor accumulation resulted in some TP but this was at the expense of TE. Other factors such as foreign direct investment and market power influenced TP and TE in opposing directions, highlighting the need to consider the impact of various policies on the trade-offs and dynamics underlying TP and TE for optimal TFP growth. Thus, policy coordination is crucial for sustainable growth but at the same time leapfrogging into advanced sectors without sufficient learning-by-doing need to be avoided.


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pp. 360-373
Launched on MUSE
Open Access
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