Labour Productivity of the Manufacturing Sector in Malaysia: An Inter-State Analysis

Abstract: The impact of productivity and efficiency on economic performance in Malaysia has been a subject of considerable scrutiny. There has been significant debate regarding labor productivity in the manufacturing sector specifically. Most existing studies have approached this issue from the perspective of the overall economy, individual industries, or selected sub-sectors at a national scale. However, there is limited research on the contributions of the manufacturing sector at the state level in Malaysia. This study examines the determinants affecting labor productivity both nationally and state level. Using the Pooled Mean Group (PMG) estimator, the analysis covers five stages of the Malaysia Plan (MP) from 1991 to 2015, spanning the sixth to the tenth MP. Results indicate that wages and Consumer Price Index (CPI) are positively correlated with labor productivity in the manufacturing sector at the national level. Keywords: Labor Productivity, Manufacturing Sector, Determinants, Inter-State JEL Classification Number: E24 J24 O11 O14