Resource Misallocation and Productivity Gaps in Malaysia

38 Pages Posted: 21 Mar 2018

See all articles by Lay Lian Chuah

Lay Lian Chuah

World Bank - Development Research Group (DECRG)

Norman Loayza

World Bank - Research Department

Ha Nguyen

World Bank

Date Written: March 19, 2018


The reallocation of resources from low- to high-productivity firms can generate large aggregate productivity gains. The paper uses data from the Malaysian manufacturing census to measure the country's hypothetical productivity gains when moving toward the level of within-sector allocative efficiency in the United States to be between 13 and 36 percent. Across three census periods in 2000, 2005, and 2010 (the most recent available), the productivity gaps appear to have somewhat widened. This suggests that the "catching-up" process remains a challenge and a potential opportunity, particularly if total factor productivity is expected to be the dominant source of future economic growth. The simulations, based on different magnitudes of the realization of hypothetical productivity gains, show that Malaysia's gross domestic product growth can potentially increase by 0.4 to 1.3 percentage points per year over five years. The analysis accounts only for resource misallocation within sectors. There may be other, possibly large, resource misallocation across sectors. If so, closing those gaps could boost total factor productivity and gross domestic product growth even further.

Keywords: Food & Beverage Industry, Common Carriers Industry, Business Cycles and Stabilization Policies, Construction Industry, Plastics & Rubber Industry, Pulp & Paper Industry, Textiles, Apparel & Leather Industry, General Manufacturing, Employment and Unemployment, Transport Services, Food Security, Public Sector Administrative & Civil Service Reform, Economics and Finance of Public Institution Development, De Facto Governments, Democratic Government, State Owned Enterprise Reform, Public Sector Administrative and Civil Service Reform

Suggested Citation

Chuah, Lay Lian and Loayza, Norman and Nguyen, Ha, Resource Misallocation and Productivity Gaps in Malaysia (March 19, 2018). World Bank Policy Research Working Paper No. 8368. Available at SSRN:

Lay Lian Chuah (Contact Author)

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
Washington, DC 20433
United States

Norman Loayza

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Ha Nguyen

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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