Resource Misallocation Leading to Productivity Gaps in Malaysia's Manufacturing Sector?

23 Pages Posted: 18 Jun 2019

See all articles by Lay Lian Chuah

Lay Lian Chuah

The World Bank

Norman Loayza

World Bank - Research Department

Ha Nguyen

World Bank

Date Written: May 1, 2019

Abstract

The reallocation of resources from low- to high-productivity firms can generate large aggregate productivity gains. The paper uses data from the Malaysian manufacturing censuses of 2005 and 2010 to measure the country’s hypothetical productivity gains if all misallocation within industries are removed. Comparing the results across the two census waves, we conclude that efficiency gaps (that is, the degree of misallocation) in Malaysia have narrowed by one-fifth. The efficiency gaps, however, appear to be over 40 percent, indicating a substantial room for improvement. This is important, particularly if total factor productivity growth is expected to support future economic growth. The analysis in this paper accounts only for resource misallocation within sectors. There may be other, possibly large, resource misallocation across sectors. Closing those gaps could boost total factor productivity and gross domestic product growth even further.

Keywords: Total factor productivity, resource misallocation, distortions, efficiency, growth, manufacturing, Malaysia

JEL Classification: D24, O12, O40

Suggested Citation

Chuah, Lay Lian and Loayza, Norman and Nguyen, Ha, Resource Misallocation Leading to Productivity Gaps in Malaysia's Manufacturing Sector? (May 1, 2019). Available at SSRN: https://ssrn.com/abstract=3400507 or http://dx.doi.org/10.2139/ssrn.3400507

Lay Lian Chuah (Contact Author)

The World Bank ( email )

Washington, DC 20433
United States

HOME PAGE: http://www.worldbank.org/en/about/people/l/lay-lian-chuah

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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