Malaysian industrialisation : production fragmentation, productivity and technology spillovers

This thesis is a combination of four research papers that examine different aspects of industrialisation in Malaysia. Malaysia has moved from a small agricultural-based country into pioneering export-oriented manufacturing within its region. However, the nation has yet to reach a high-income status. Currently, industrialisation in Malaysia has come to a slowdown and is deemed to be stuck in the middle income trap (Chapters 1 and 2). The industrialisation slowdown constitutes the anchor topic and motivation that gives rise to the need to understand the determinants and sources of Malaysia's economic growth. The thesis addresses three broad hypotheses: First, international production fragmentation is important as a source of economic growth; and understanding its determinants may provide the resources for the country to move out of the trap. Second, productivity-driven growth is important to upgrade the manufacturing sector. Finally, sources of productivity growth may come from Malaysia's involvement in the fragmentation network or spillovers channelled by input output linkages between foreign and local firms. Chapter 3 (Research Paper 1) examines one source of economic growth - through production fragmentation networks. The paper focuses on the information, communication and telecommunication (ICT) industry due to the industry's profound involvement in international production networks. Results show that mobile input factors such as labour cost, and productivity, have stronger impacts on PNC than the traditional final goods trade variables such as relative prices and income effect. Differences in labour productivity also played an important role. Chapter 4 (Research paper 2) examines the productivity trends, patterns and changes in the Malaysian manufacturing sector from the 1980s to 2007. The paper hypothesises that increased in productivity growth is the key for moving into higher skills-oriented activities, hence breaking free from the middle income trap. To improve productivity growth, increased in domestic competitiveness and labour skills are required. Finally, statistical evidence of spillovers shows that the concerns over the ""dualistic"" nature of the manufacturing sector should not be overly exaggerated. Chapter 5 (Research paper 3) combines the two key strands in Chapters 3 and 4, and examines the impact of the international production fragmentation network on productivity growth. The study hypothesises that international production fragmentation can affect productivity growth through trade and FDI. International fragmentation can affect productivity growth only if the industries are producing in skills-oriented activities, rather than focusing on low-skilled labour-intensive ones. In Chapters 4 and 5, the channels that facilitate technology transfer have yet to be established. Chapter 6 fills this gap by examining the mechanism of productivity spillovers from foreign to local firms. The paper focuses on the impact of vertical, forward and backward linkages in affecting productivity spillovers under different firm characteristics. The results suggest that domestic input-output linkages are increasingly irrelevant in affecting productivity spillovers for an outward-oriented country such as Malaysia. However, firms with a less skilled workforce do benefit from linkages with foreign firms. Export and market-driven firms have benefited by forming backward linkages with local foreign firms while skills-oriented and IFN-oriented firms are able to upgrade using horizontal channels. -- provided by Candidate