Resource Misallocation and Productivity Gaps in Malaysia
38 Pages Posted: 21 Mar 2018
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
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