Human Capital Investment to Achieve Knowledge-Based Economy in ASEAN5: DEA Applications

Abstract

Over the past few decades, ASEAN countries have achieved varying levels of economic development. In this paper, the nature and extent of productivity changes of ASEAN5 countries, namely, Malaysia, Indonesia, Philippines, Thailand and Singapore, are analysed over the period 1993 to 2006. The Malmquist total factor productivity (TFP) index calculated within the framework of data envelopment analysis is next decomposed into three constituent elements accounting for different sources of productivity growth, which are technological progress, efficiency change and the effects of economies of scale. The analysis is carried out for the sample with and without human capital variable to isolate the impact of human capital investment on TFP growth in these countries. Results indicate that when human capital is included in the model, Malaysia and Singapore reported an increase in TFP and this growth in productivity is derived from both technical efficiency gain and technological progress. The model without human capital shows that there is a TFP reduction in Malaysia, Philippines and Thailand whereas Indonesia and Singapore recorded a growth in TFP. This suggests that human capital investment plays a pivotal role in driving TFP growth in Malaysia. This result will guide appropriate policy formulation in the area of human capital investment.