Total Factor Productivity and Its Contribution to Malaysia\'s Economic Growth

This study examines Total Factor Productivity (TFP) growth of the Malaysian economy from 1971 to 2007. By using the method of Data Envelopment Analysis (DEA), this study estimates the contribution of technological change and technical efficiency change to the TFP growth and further identifies the determinants of TFP. The results from this study show that for the overall periods between the years 1971 and 2007, the contribution of technological change to TFP is higher than the contribution of technical efficiency change. Similar results are found for the periods 1971-1985 and 1999-2007. Only for the period 1986-1998, the contribution of technical efficiency change exceeds that of technological change. The study found that even though TFP growth is a significant contributor to the economic growth, but its contribution is still lower than the capital and labor. In contrast, capital is the most important contributor to the economic growth of Malaysia. Further, the result shows that the manufacturing output growth is the main contributor to the growth of TFP, followed by the percentage of foreign-owned companies. The percentage of workers with tertiary education is not a significant determinant of TFP growth despite having a positive and the highest coefficient.