Abstract
Based on Cuesta (2000), this paper develops a stochastic frontier production model that allows for different groups of firms to have different patterns of technical efficiency over time. The authors apply the model to the Malaysian manufacturing sector to decompose total factor productivity growth into technical efficiency change and technical progress for different firm sizes - e.g., large and small - in seven industries during 2000-2004. The empirical results indicate that technical efficiency has worsened across all industries and firm sizes. In contrast, evidence of substantial technical progress was found in all industries. In fact, technical progress has been larger than technical efficiency deterioration in most industries and firm sizes, leading to total factor productivity growth. The analysis identifies the industries and firm sizes that lag the most in productivity, and thus have the greatest scope for policies that facilitate productivity growth.
Highlights
Malaysia has been hit hard by the global financial and economic crisis, with its gross domestic product (GDP) growth slowing down sharply from an average of 6% in 2003–2007 to 4.6% in 2008, and an outright contraction of 3.1% is projected for 2009
Malaysia is an upper middle-income country that is reaching a development stage where productivity growth will be more important to economic growth than accumulation of capital and labor
A more accurate measurement of productivity and productivity growth calls for using firm-level or industry-level data
Summary
Malaysia has been hit hard by the global financial and economic crisis, with its gross domestic product (GDP) growth slowing down sharply from an average of 6% in 2003–2007 to 4.6% in 2008, and an outright contraction of 3.1% is projected for 2009. Developing Asia did not suffer the severe credit crunch that gripped the US and the European Union during the Productivity Growth in Different Firm Sizes in the Malaysian Manufacturing Sector: An Empirical Investigation |. Global financial crisis, the flow of credit to SMEs was disrupted to some extent Another example of a production constraint that is more binding for SMEs than larger firms is shortage of skilled workers. The central objective of this paper is to empirically examine recent trends in total factor productivity and its two components—technical efficiency change and technical progress—for different groups of firms in several Malaysian manufacturing industries during 2000–2004. In addition to allowing for different temporal patterns of productivity growth across different groups of firms, the model solves the “incidental parameters problem” in Cuesta’s model, which results from the number of parameters increasing with sample size.
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