Proceedings of Applied International Business Conference 2008
RELATIVE EFFICIENCY OF DOMESTIC AND IMPORTED INPUTS IN MALAYSIAN
MANUFACTURING SECTOR, 1983-2000
Noorasiah Sulaimanψ and Zakariah Abdul Rashid
Universiti Putra Malaysia, Malaysia
______________________________________________________________________________________
Abstract
The paper examines the relative efficiency of utilization of intermediate inputs, separated into domestic and
imported materials, in Malaysian manufacturing sector during 1983 and 2000 periods. This study utilizes
basic table of input and output matrices from the input-output tables. The input-output coefficients of
domestic and imported inputs are derived by using commodity technology model, in addition to the
conventional technical coefficients. The former method will give reasonable results as it overcomes some
criticism of the latter. There are three main finding indicated from this study. Firstly, the share of
percentage of domestic input is high in resources-based industries, while nonresources-based industries had
a high percentage share of imported input over the periods of the study. Secondly, resources-based industry
shows productivity improvement in imported input used but not for domestic input. Nonresources-based
industry presents high improvement in productivity both in domestic and imported inputs over the period of
the study. Thirdly, the numbers of industries efficient in using imported input are higher both in resources
and nonresources-based industry. This means that both resources and nonresources-based industries are
more efficient in terms of imported input used. In addition to that, nonresources-based industry is also
efficient in terms of domestic input used, while resources-based industries relatively inefficient in using this
input.
______________________________________________________________________________________
Keywords: Resources-based industry; Nonresources-based industry; Productivity improvement and
Relative efficiency.
JEL Classification Codes: N6; R51.
1. Introduction
After independence in 1957, Malaysian economy has experienced a huge amount of import due to uneffectiveness of industrial policies. The reduction on imports is reflected by the implementation of Import
Substitution Policy: Phase I (1958-1967) (Rokiah Alavi, 1996), where it has purposed to reduce
dependency on imported consumer’s goods. In addition to that, industrial policy has continued with Import
Substitution Policy: Phase II (1981-1985), which is undertook to reduce imported inputs used in the
manufacturing sector. This is also to give a way to small and medium industries (SMIs) as an indigenous
industry to develop as well as incentive given by the government on the domestic content of export under
Incentive Investment Act in 1986. In line with the reduction on imported input, foreign companies have
been given incentive for the domestic input used in the production.
In addition to that, in the 6th Malaysia Plan (1991-1995), Malaysian industrial development has identified
manufacturing sector into resources based and non resources-based industries (Malaysia, 1991) in order to
focus on the industrial strategies. Thus, it is a way to measure the economy ‘churns’ by using domestic
resources as an intermediate input and reduce the dependence on imported material input. Hence,
resourced-based industry uses domestic input in the production will give an added-value to the Malaysia’s
exports. These industries are expected to give a maximum potential output of the manufacturing sector
through the utilization of domestic input. Resources-based industries are able to create a strong linkage
with the primary sector as it needs supply particularly from the agricultural sector and increase the addedvalue of the agricultural products. Moreover, this is to create linkage between foreign companies and
domestic input produced by Small and Medium Industries (SMIs). The incentives given are to expand
ψ
Corresponding author. Noorasiah Sulaiman. School of Economy, Faculty of Economics and Business,
Universiti Kebangsaan Malaysia, 43600 Bangi, Selangor. Corresponding author Email:
[email protected]
Proceedings of Applied International Business Conference 2008
manufacturing’s export under Export Oriented Policies with high domestic input content as well as
relationship between SMIs and Multinational Companies (MNCs).
Apart from linkage and added value as mentioned above, the attention on resources-based industries will
reduce dependence on the imported input and this will improve deficit in current balance of payment.
Therefore, the purpose of this paper is to examine a relative efficiency between domestic inputs and
imported raw materials used in the subsectors of the manufacturing sector, which is classified into resource
and nonresources-based industries. The utilization of domestic input is always associated with resourcesbased industries and imported input with the nonresources-based industries. The result from this study
reflects which inputs are relatively used in more productive or efficient. In addition to that, this study is
also analyzed which subsector of the manufacturing is relied on the domestic input and imported raw
materials between the periods of the study.
This paper is organized into five sections. The next section is followed by section 2, which is discussed on
related indicators of the manufacturing sector that supports the issue of the study as presented in Section 1.
Section 3 outlines the model used in this study, data collection and input-output aggregation process.
Section 4 presents the finding of the study and discusses the results of the study. Section 5 outlines some
policy implications related to the study and conclusion.
2. Review of related indicators of the manufacturing sector
As shown in Table 1, the importance of agricultural sector is decreasing in terms of its share to Gross
Domestic Product (GDP) and export. In contrast, the manufacturing sector has gained its importance in
terms of average annual rate of growth, share in GDP and percentage of export. It should be noted that
within the agricultural sector, diversification had taken place thereby enabling a reduction in the traditional
importance of rubber export in the 1970s to palm oil, timber and cocoa in the 1980s and 1990s. Similarly,
tin’s importance in the mining sector had been replaced by the production of petroleum and gas. The share
of manufacturing to export has increased since 1970. In 1990, the share of manufacturing to export has
increased from 60.4% to above than 80.0% in 2000 and 2005, where the electrical and electronics industry
has contributed more than 70.0% of the overall Malaysia’s export.
Table 1: Changes in Economic Structure, 1970-2005
Average annual growth rate (%)
Share of GDP (%)
1970-79 1980-89 1990-99 2000-05 1970
1980
1990
2000
2005
Agriculture
6.1
4.2
2.2
3.8
32.3
24.6
15.2
8.8
8.7
Mining
8.6
5.9
8.5
2.3
5.8
4.6
11.8
10.9
15.2
Manufacturing
16.0
8.8
12.1
4.2
12.3
19.2
24.2
32.6
30.5
Construction
9.1
2.1
11.9
0.4
4.5
4.8
3.6
3.3
3.1
Services
9.3
7.6
12.8
6.3
45.0
46.8
46.4
48.3
46.2
Share of export (%)
1970
1980
1990
2000
2005
Agriculture
60.2
43.8
22.3
6.1
7.0
Mining
26.4
34.3
17.8
7.2
9.8
Manufacturing
12.2
21.1
59.3
85.2
80.5
Others1
1.2
0.8
0.6
1.5
2.7
Source: Malaysia (2006): Statistics-Time Series 2005; Bank Negara Report, various years (share of
export).
Note: Others include forestry.
Sector
The role of foreign direct investment (FDI) is undeniable in the context of Malaysian economy. Malaysian
economy actually experienced the substantial FDI inflows, particularly in the manufacturing sector.
Although, FDI inflows in Malaysia have been decreasing in a later period, especially after the China
launched their economy for the world trade transition, the amount of FDI inflows is still higher compared
to other ASEAN countries, except Singapore. The United Nations Conference Trade and Development
reported that FDI inflow into South East Asia region was US$37.1 billion in 2005. Malaysia had received
U.S$3.9 billion out of the total FDI inflows into ASEAN (UNCTAD, 2006). Most FDI are centered in
textiles and electrical and electronics products are classified into nonresources-based industries. The
classification into resources and non-resources-based industries presented in Appendix 1 are based on the
Economic Planning Unit (Malaysia, 2006). Most FDI centered on these industries recorded a higher growth
of output contribution to the manufacturing sector. The electrical and electronics industry has only
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Proceedings of Applied International Business Conference 2008
registered 65.7% of the manufacturing’s export in 1995 increased to 72.5% in 2000. This reflects that
nonresources-based industries have contributed a high share of percentage of the manufactured goods
exports.
Table 2 shows a percentage share of export of resources-based industries and nonresources-based
industries. The nonresources-based industries registered at 79.4% to the manufacturing export, while
resources based-industries indicated only 13.9% in 2000. The percentage share of nonresources-based
industries is also above 70.0% in 2005. The high contribution of nonresources-based industries to the
manufacturing export implies that these industries have a strong relationship with export-oriented
industries. As shown in Appendix 1, nonrecourses-based industries such as textile, electrical and
electronics, wearing apparel, leather products and machinery and equipment are actually export-oriented
industries. As a result, export of these industries may probably have a high content of imported raw
materials. At the same time, industries which are categorized into resources-based industries such as
rubber, wood products, paper products and plastic products are also export-oriented industries. The
productions of resources-based industries are mainly based on the domestic input used. These industries are
expected to create a higher added-value for the manufacturing products. The production of resources-based
industries is also able to maximize the output potential produce by these industries and a high content of
domestic input in export may reduce a high deficit in current account balance.
Table 2: Share of the manufacturing export
Source of export (%)
1981
1989
2000
Resources-based industries
25.1
17.9
13.9
Nonresources-based
274.9
82.1
79.4
industries
Source: Bank Negara Report (various years)
2005
18.0
73.8
As shown in Table 3, most of intermediate goods are industrial supplies such as metal, fuel and lubricants,
parts and accessories of capital goods (except transport equipment). These intermediate inputs are needed
in the production of nonresources-based industries. The share of intermediate inputs in the gross import has
increased over time since 1980 to 2000, which is accounted for 45.5% increased to 73.8%, except in 2005 it
decreased slightly to 71.0%. The reduction in the capital goods can be seen in 2000 and 2005, where
through its good performance import shares dropped to 15.1% and 14.0% in both years respectively.
Although the reduction in imported capital goods and imported consumption goods has decreased in a later
period, it is most likely that a reduction in these two imported goods has replaced by a high shares of
imported intermediate goods. The Annual Report by the Central Bank has revealed a heavy dependence on
imported raw materials and machinery in these exports resulting in an increase in the current account
deficit by 5.9% of GDP in 1997. Substantially, as mentioned above, most FDI in Malaysia concentrated in
nonresourced-based industries such as electrical and electronic products, textile and clothing, manufactures
of metal and transport equipment. This reflects one of the major problems in the development of the
manufacturing sector, that is, the rather weak links forged with the domestic economy. The other major
problem lies in the narrow industrial base with the export of manufactured goods concentrated in the
electrical and electronics and textile sectors.
Table 3: Share of imported goods
Share of import (%)
1980
1985
1990
1995
2000
2005
Capital goods
37.5
31.2
35.5
41.6
15.1
14.0
Intermediate goods
45.5
46.8
41.5
40.8
73.8
71.0
Consumption goods
18.0
21.0
21.9
16.5
5.6
5.7
Dual use goods
..
..
..
..
2.0
2.6
Others
..
..
..
..
1.5
1.7
Import for re-exports
2.0
0.7
1.1
1.1
2.0
5.0
Source: Bank Negara Report (various Years)
Note: Capital goods [capital goods (except transport equipment), industry equipment and
transport
equipment]; Intermediate goods (food and beverage mainly for industry, industrial supplies, metal, fuel and
lubricants, parts and accessories of capital goods (except transport equipment).
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Proceedings of Applied International Business Conference 2008
The high import of raw materials used in the production of nonresources-based industries may cause deficit
in a current account. The deficit in current account is a major concern of imported raw material used in the
production of the manufacturing sector. From Table 4, although trade account balance shows surplus in all
periods from 1985 to 2005, Malaysia experienced a continuous deficit in current account balance from
1980 to 1997, except for 1987 and 1988. The surplus in current account balance only exhibits in a later
period of 1998. Moreover, the current account deficit has increased -2.1% in 1990 to -9.7% in 1995. Total
import as a percentage of total export had recorded above than 75.0% over the period of 1980 to 2005,
where the highest amount of total import as a percentage of total export accounted for 99.9% in 1995. This
shows that import increased as well as export increased. Since the manufactured goods contributed a large
amount of the Malaysia’s export, export of the manufacturing sector may reflect a high content of imported
raw materials.
Table 4: Real GDP and trade indicators for Malaysia, 1980-2005
1980
1985
1990
1995
1998
Real GDP growth rate (%)
Average growth
7.4
-1.1
9.0
9.8
1980-1989
1990-1999
4.8
7.3
Trade balance (RM Million)
5.2
8.9
7.1
0.2
Current account balance (RM Million) -0.6
-1.7
-2.5
-18.7
Current account (as % of GDP)
-1.2
-1.9
-2.1
-9.7
Import (as % of export)
81.3
77.1
90.7
99.9
Source: Malaysia (2006): Statistics-Time Series 2005
Note: real GDP growth: 1980-1985: 1978=100; 1990-2005:1987=100.
2000
-7.3
8.8
2000-2005
5.2
69.2
79.1
37.4
32.0
13.2
9.4
75.4
78.8
2005
5.2
125.6
75.7
14.8
76.7
3. Input-output commodity technology model
This section describes the techniques used in commodity technology model (CTM). The model provides a
compatible procedure with modern I-O table, which provide both a ‘use’ and ‘make’ matrix1, which based
on the basic table in the Malaysian I-O. By using CTM, the derivation of I-O technical coefficients can be
written as in equation (1):
(1)
Solving equation (2) in the matrix form, we obtain technical coefficient derived by commodity technology
model as (ten Raa et al., 1984; Kop Jansen and ten Raa, 1990):
(2)
: denotes ‘use’ table or input matrix;
: denotes ‘make’ table or output matrix;
Superscript
: refers to the inverse of the transpose of the indicated matrix, and;
Subscript C : refers to Commodity Technology Model.
Where;
shows the total input of commodity
The ‘use’ table matrix records inputs used by industries, where
consumed by industry . The ‘make’ matrix records primary and secondary products produced by each
industry, where
shows the total output of industry producing commodity . In other words, commodity
is produced by industry [United Nations (1967); ten Raa et al., (1984)]. Table and in the matrix
system can be represented as:
is a
matrix
U
is a
matrix
The choice of model is made on the basis of the reasonableness of the assumptions. By using CTM, this
model is defined by the assumption that each commodity has a unique input structure, irrespective of the
sector of fabrication. The number of activities must equal the number of commodities. This model is also
assumed that each commodity is produced by the same technology, irrespective of the production of
industry. In this case, industries are considered independent combination of outputs , each with their
separate input coefficients
. In this study, matrix, which is referred to input matrices are classified
into two. These are domestic input matrices,
and imported input matrices,
. The changes in input
coefficients whether for domestic input and imported input can be obtained from equation (3) below;
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Proceedings of Applied International Business Conference 2008
Change in input coefficients:
Where:
(3)
change in input coefficients (domestic or import);
input coefficients (domestic or import) from sector to sector or the
intermediate inputs of the th sector used by the th sector,
;
the terminal year and the initial year.
Equation (3) estimates changes of domestic input or imported inputs used to produce 1 unit of output
relative to the time, which is referred to the sub-periods of the study. Change in input coefficients whether
domestic and imported input are obtained by average proportionate change in input coefficients. The final
equation of average proportionate change in input coefficients are measured as weighted average of
proportionate change of each sub-period of the study as shown in equation (4):
Weighted average of proportionate change:
Where:
(4)
total output of industry, ; and,
grand total output of industry, .
Change in input used (domestic or import) can measures efficiency of the respective input used to produce
1 unit of output. The results of the change in coefficients can be positive and negative. The negative sign of
the change in input coefficients is interpreted as improvement in relative efficiency of the intermediate
input used. In other words, input is utilized more productive. On the other hand, positive sign of the change
in input coefficients presents the input is relatively used inefficiently.
Data Sources
This study employs data from Malaysian I-O Tables for 1983, 1987, 1991 and 2000 published by
Department of Statistics. This study has classified into a sub-periods of 1983-1987, 1987-1991 and 19912000. The basic table of the Malaysian I-O is utilized, which is included the basic table of domestic input
and basic table of output matrix. However, basic table for imported input is derived from the basic table of
total input (domestic plus import) and the basic table of domestic input matrices in order to get a reliable
estimation for imported input coefficients. The basic table of output matrix shows along the column, the
output produced by a certain amount of the industry’s total production. This includes the intermediate
requirement of domestically produced goods and services. On the other hand, basic table of input matrix
shows the different uses of the commodities, showing the use of the commodities as inputs of the output
produced.
Input-Output Sectoral Aggregations
The existing framework of national income account classification has governed the potential maximum size
of the Malaysia I-O Tables, which is I-O tables 1983 and 1987 are
industries, I-O table 1991
industries and I-O table 2000
industries. However, the scopes of this study only focus
on the manufacturing sector. Thus, this study reduced the tables to 32 by 32 industries/commodities,
covering all 31 manufacturing industries/commodities and single sector which represent the ‘other sectors’
that includes the services, agriculture, mining and construction, and the rest of public sectors.
4. Results and discussions
The result of this study is analyzed into resources and nonresources-based industries. As shown in Table 5,
there are 21 subsectors, which are categorized into resources-based industries, while nonresources-based
industries comprise 10 subsectors of the manufacturing sector. Table 5 shows the percentage of domestic
input and import raw materials used in resources and nonresources-based industries of the manufacturing
sector between the periods of 1983 to 2000. Resources-based industries exhibits the percentage share of
domestic input used in the subsectors of the manufacturing sector relatively higher than imported raw
materials, except for animal feeds, other foods, tobacco, plastic products, chemical, paint and lacquers and
other chemical products industries. The high share of percentage of domestic input can be seen in preserved
food, oils and fats, wood products, furniture and fixtures, processed rubber, rubber products and cement
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Proceedings of Applied International Business Conference 2008
lime and plaster industries. As resources-based industries, the share of percentage of domestic input used
should higher than imported input used. However, this is not happen for some industries, where the
percentage shares of imported input are found higher than domestic input.
As presented in Table 5, the high share of percentage of imported raw material in nonresources based
industries over the period 1983 to 2000 is obtained in wearing apparel, nonelectrical machinery, electrical
machinery, motor vehicles, other transport equipment industries and other manufacturing products. The
remarkable result shows electrical machinery industry registered more than 70.0% of the imported raw
materials used in this industry. Other industries such as textile, basic metal and other metal products
however shows inconsistent trend of the percentage shares of domestic input and imported input used in
these industries. Only meat and dairy products industry shows the percentage shares of domestic inputs is
higher than imported input over the period of the study.
In terms of total average, resourced-based industries registered more than 60.0% of the share of domestic
input and less than 40.0% of imported input, except in 1991. In contrast, nonresources-based industries
have shown less than 50.0% of domestic input and more than 50.0% of imported input used. This implies
that resources-based industries are actually dependent on the domestic input sources, while nonresourcesbased industries rely on the imported input as well as FDI in Malaysia concentrated in nonresourced-based
industries.
Table 5: The share of domestic and imported inputs, 1983-2000 (%)
Domestic input (1)
Imported input (2)
Resource-based industry
1. Preserved food
2. Oils and fats
3. Grain mill products
4. Bakery, confectionary
5. Other foods
6. Animal feeds
7. Beverages
8. Tobacco
9. Wooden products
10. Furniture and fixtures
11. Paper and printing
12. Industrial chemicals
13. Paints and lacquers
14. Other chemical products
15. Petroleum and coal
16. Processed rubber
17. Rubber products
18. Plastic products
19. China, glass and clay
20. Cement, lime and plaster
21. Other non-metal mineral
Total average
Nonresources-based
industry
1. Meat and dairy products
2. Textile products
3. Wearing apparel
4. Basic metal products
5. Other metal products
6. Non-electrical machinery
7. Electrical machinery
8. Motor vehicles
9. Other transport equipment
10. Other manufacturing
1983
1987
1991
90.03
86.81
88.09
96.78
91.54
93.76
70.91
72.88
60.46
80.73
83.41
81.03
44.36
50.00
45.80
44.01
44.74
32.58
73.73
68.24
69.25
42.41
58.64
51.18
75.66
82.05
82.72
80.64
77.75
51.73
49.41
47.33
44.19
52.58
75.71
46.42
48.84
47.07
41.48
61.32
55.21
42.59
53.51
70.88
86.46
97.30
97.58
97.63
67.73
67.67
59.49
45.80
37.58
48.88
67.61
68.13
64.46
77.94
74.41
81.59
67.72
77.81
70.73
66.14
68.36
63.83
Domestic input (1)
2000
70.16
92.00
68.83
53.62
67.81
30.99
50.87
38.47
84.21
54.43
59.87
61.97
60.59
56.57
61.94
85.35
53.85
38.71
66.04
67.10
70.76
61.63
1983
1987
1991
9.97
13.19
11.91
3.22
8.46
6.24
29.09
27.12
39.54
19.27
16.59
18.97
55.64
50.00
54.20
55.99
55.26
67.42
26.27
31.76
30.75
57.59
41.36
48.82
24.34
17.95
17.28
19.36
22.25
48.27
50.59
52.67
55.81
47.42
24.29
53.58
51.16
52.93
58.52
38.68
44.79
57.41
46.49
29.12
13.54
2.70
2.42
2.37
32.27
32.33
40.51
54.20
62.42
51.12
32.39
31.87
35.54
22.06
25.59
18.41
32.28
22.19
29.27
33.86
31.64
40.47
Imported input (2)
2000
29.84
8.00
31.17
46.38
32.19
69.01
49.13
61.53
15.79
45.57
40.13
38.03
39.41
43.43
38.06
14.65
46.15
61.29
33.96
32.90
29.24
38.37
1983
85.86
64.91
42.96
64.49
53.25
48.05
30.39
27.82
26.43
48.53
2000
73.99
46.76
49.00
37.25
47.99
18.88
25.25
46.03
32.00
41.43
1983
14.14
35.09
57.04
35.51
46.75
51.95
69.61
72.18
73.57
51.47
2000
26.01
53.24
51.00
62.75
52.01
81.12
74.75
53.97
68.00
58.57
1987
84.53
57.27
38.22
67.62
51.71
45.53
20.94
40.77
44.86
34.52
1991
80.81
23.02
24.21
54.15
57.53
38.75
30.51
25.07
38.49
32.17
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1987
15.47
42.73
61.78
32.38
48.29
54.47
79.06
59.23
55.14
65.48
1991
19.19
76.98
75.79
45.85
42.47
61.25
69.49
74.93
61.51
67.83
Proceedings of Applied International Business Conference 2008
Total average
49.27
48.60
36.17
Domestic input (1)
41.86
50.73
51.40
59.53
Imported input (2)
Non-manufacturing
1983
1987
1991
2000
1983
Other sectors
67.84
70.75
71.47
64.28
32.16
Overall average
60.92
62.26
56.77
55.53
39.08
Source: computed from Malaysian Input-Output Tables (various years).
Note: Total input comprises column (1) and (2) of the respective years.
1987
29.25
37.74
1991
28.53
43.23
58.14
2000
35.72
44.47
Table 6 shows productivity improvement in input used of domestic input and import raw materials in
resources and nonresources-based industries of the manufacturing subsectors over the period of 1983 to
2000. The result of productivity improvement measures efficiency in input used whether domestic or
imported inputs to produce 1 unit of output. Firstly, result from Table 6 discusses productivity
improvement in input used of domestic input and imported raw material between resources or
nonresources-based industries. Secondly, the result compares productivity improvement between domestic
input and import raw materials used. In other words, this compares productivity improvement in the input
used.
From the table, resources-based industry shows high percentage of productivity improvement in the
imported input used over the three periods of the study. On the other hand, productivity improvement in
domestic input used by resources-based industry is rather low for the same period of the study. The result
of productivity improvement in domestic input used is obtained less than 10.0% for the three periods of the
study. This actually reflects that resources-based industries are relatively less efficient in using domestic
inputs and relatively efficient in imported input. For nonresources-based industry, the percentage of
productivity improvement in the imported input used is much higher than resources-based industry. In
terms of domestic input used in nonresources-based industry, the percentage of productivity improved by
this industry is also high, which is above than 40.0%, except for the period of 1991-2000 is only 25.5%.
Industrial type
Table 6: Productivity improvement in input used (%)
Weighted average of
1983-1987
1987-1991
1991-2000
input
D
M
D
M
D
M
1983-87
1987-91
Resources-based
2.5
23.6 0.9
15.0 8.9
19.8 13.0
8.0
industry
Nonresources41.9 50.4 40.3 25.5 25.5 34.6 46.1
32.9
based industry
Weighted average
22.2 37.0 20.6 20.2 17.2 27.2
of each input
Source: Appendix 1.
Note: D: domestic intermediate input; M: imported intermediate input; Total input = D+M.
total
91-2000
14.3
30.0
Nonresources-based industry registered high percentage of productivity improved both in domestic and
imported input used over the three periods of the study. In contrast, resources-based industry has shown a
low percentage of productivity improved whether domestic or imported input used for the same period,
especially domestic and imported input used for the period 1987-1991. The low percentage productivity
improved in resources-based industry over this period is only 0.9% and 15.0% of domestic and imported
input used as the economy emerged from the 1985 recession. The recovery of the economy can also be seen
in the percentage of productivity improved whether domestic and imported input used increased to 8.9%
and 19.8% respectively in a later period of 1991-2000.
From this analysis, weighted average of total input in resources-based industry is much lower than nonresources based industry over the three periods. It registered at 13.0%, 8.0% and 14.3% of productivity
improved in resources-based industry. On the other hand, weighted average of total input in nonresourcesbased industry registered at 46.1%, 32.9% and 30.0% of productivity improved over the three periods of
the study. The negative results of weighted average of total input highlight that resources-based industry
still has room for improvement especially in terms of domestic input used. The improvement of domestic
input will increase added-value of domestic content. At the same time, local industry produces less wastage
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in domestic resources. This will also reduce dependency on nonresources-based industry in using domestic
input used.
In terms of type of input used, the result of domestic input used shows productivity improvement in
nonresources-based industry is higher than resources-based industry. It is registered about 41.9%, 40.3%
and 25.5% over the three sub-periods respectively. The similar result is also obtained from imported input
used by nonresources-based industry. The result of productivity improvement in imported input used in
nonresources-based industry was 50.4% over the period 1983-1987, slightly decreased to 25.5% for the
period 1987-1991, and increased to 34.6% in 1991 to 2000. This result the productivity improvement of
weighted average of imported input used is larger than domestic input, except for the period 1987-1991, it
is only 20.2% slightly lower than domestic input.
Figure 1, 2 and presents relative efficiency of domestic and imported input between resources and
nonresources-based industry over the three periods of the study. More than 50.0% resources-based
industries are inefficient in using domestic input showing by the positive area and highly efficient in
imported input used in the negative area over the period 1983-1987 and 1991-2000 except for 1987-1991
periods. The economic recession in 1985 was resulted a high efficiency in domestic input used for the
period 1987-1991. In contrast, a high percentage of industries (76.2%) are inefficient in using imported
input. This is actually due to high foreign exchange of the import prices. On the other hand, nonresourcesbased industry is rather efficient in using both domestic and imported input over the three period of the
study, except for domestic input in 1991-2000.
Figure 1 : Relative efficiency of domestic and imported input used in resources and nonresourcesbased industry, 1983-1987
Source: Figure1, 2 and 3 from Appendix 1.
Note: DR=domestic input of resources-based industry; MR=imported input of resources-based
industry;
DNR=domestic input of nonresources-based industry; MNR=imported input of nonresources
based industry. A negative sign shows efficiency, and positive sign shows relatively
inefficient of the input used.
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Figure 2 : Relative efficiency of domestic and imported input used in resources
and nonresources-based industry, 1987-1991
Figure 3 : Relative efficiency of domestic and imported input used in resources
and nonresources-based industry, 1991-2000
The result of Table 7 shows among the subsectors of resources-based industries, only three subsectors
experienced efficiency in the domestic input used over the three sub-periods of the study. These are paper
and printing industry, other chemical industry and plastic industry. In terms of imported input, there are
four industries show efficiency in using imported input over the whole period of the study. These are
preserved food industry, animal feeds industry, tobacco and furniture and fixtures industry. The result
shows that number of industry relatively efficient is found higher in the imported input. The similar result
is also found in the case nonresources-based industries. The number of industries relatively efficient in
using imported input is higher than number of industries using domestic input over the whole period of the
study. These are other metal industry, nonelectrical machinery industry, electrical machinery industry and
other manufacturing industry. In addition to that, nonelectrical machinery and electrical machinery were
also efficient in using both domestic and imported input over the period of the study.
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Table 7: Relative efficiency of domestic and imported intermediate inputs, 1983-2000
Domestic input
Resource-based industry
11. Paper and printing
14. Other chemical products
18. Plastic products
1. Preserved food
6. Animal feeds
8. Tobacco
10. Furniture and fixtures
Nonresources-based industry
3. Wearing apparel
6. Non-electrical machinery
7. Electrical machinery
1983-1987
-0.058
-0.119
-0.225
Imported input
-0.100
-0.070
-0.150
-0.133
Domestic input
1987-1991
-0.027
-0.006
-0.092
1991-2000
-0.009
-0.227
-0.252
-0.725
-0.526
-0.558
-0.667
-0.060
-0.251
-0.450
-0.383
1983-1987
-0.018
-0.166
-0.388
Imported input
-0.100
-0.188
-0.436
-0.402
1987-1991
-0.127
-0.412
-0.574
1991-2000
-0.098
-0.583
-0.090
5. Other metal products
-0.054
-0.121
6. Non-electrical machinery
-0.316
-0.637
7. Electrical machinery
-0.407
-0.198
10. Other manufacturing
-0.124
-0.118
Source: from Appendix 2.
Note: A negative sign shows improvement in relative efficiency of the input used.
Based on the result as discussed above, there are three main finding indicated from this study. Firstly, the
share of percentage of domestic input is high in resources-based industries, while nonresources-based
industries had a high percentage share of imported input over the periods of the study. Secondly, resourcesbased industry had shown productivity improvement in imported input used, while it did not work for
domestic input. Nonresources-based industry has shown that the percentage of productivity improved both
in domestic and imported inputs were high over the period of the study. Thirdly, the numbers of industries
efficient in using imported input are higher both in resources and nonresources-based industry. This means
that both resources and nonresources-based industries are more efficient in terms of imported input used. In
addition to that, nonresources-based industry is also efficient in terms of domestic input used, while
resources-based industries relatively inefficient in using this input.
5. Policy implications and conclusion
Material inputs or sometimes referred to as intermediate material inputs are the major2 source of input in
the Malaysian manufactures. The three main results of this study indicate that, firstly, nonresources-based
industries rely substantially on import raw materials. Heavy reliance on the imported of raw materials will
have an adverse effect on the country Balance of Payments3. Most industries of nonresources-based
industry are a multinational company of FDI. The leading nonresources-based industries of electronics and
electrical machinery have particularly high content of imported raw materials, as high as 70%. It is also
interesting to note that share of economy’s total export by nonresources-based industries is phenomenal
(more than 70.0%) compared to that of resource based- industries hovering less than 20.0%4. The over
dependence on imported raw materials is normally a characteristic of multinational companies operating in
the host countries, engaging in processing industries which import unfinished components and export
finished products (Tsao, 1985). This results in weak linkages between indigenous industries and foreign
companies, whereas linkages within the multinationals’ network of plants located throughout the world
tend to be stronger.
Secondly, the number of subsectors relatively efficient in resources-based industries in terms of domestic
input used is smaller than imported input over the periods of the study, and it shows a slightly decreased in
a later period of the study. At the same time, nonresources-based industries have also shown a decreasing
trend in terms of numbers of subsectors relatively efficient in using domestic input. In contrast, both
resources and nonresources-based industries had shown the higher numbers of subsectors, which is
relatively efficient in using imported inputs. The local sources of domestic input may be due to resourcesbased industries did not use domestic input as productive as imported input, thereby leading to the probable
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Proceedings of Applied International Business Conference 2008
underutilization of domestic input and nonresources-based industries are highly depends on the imported
input.
Thirdly, in resources and nonresources-based industries, imported raw materials are used more efficiently
than domestic raw materials, in terms of number of industries efficient over the period of the study. On the
other hand, in resources based industries domestic raw materials are not used efficiently as well as imported
raw materials. It is interesting to note that although resources-based industries sourced their material inputs
domestically, the Malaysian manufactures employ their minor material inputs more efficiently than their
major ones. The production of the manufacturing sector implies that Malaysian manufactures did not utilize
domestic input in efficient may be due to substantial sources of local input. In contrast, multinational
companies have shown efficiency in both domestic and imported input used in their production.
Undeniably, efficient use of material inputs to a large extent is a result of improvement in labour
productivity, particularly among skilled workers, and a more intensive use of physical capital, both are
observed frequently in foreign firms as opposed to the local ones (Zarina and Shariman, 1994). The
improvement if labour productivity may help increase the local value-added content of output produced,
especially in the nonresources-based industries. In other words, while there may not be a problem in
enhancing local value-added content of Malaysian manufactures in the resource-based industries as they
improve their efficiency in the use of domestic materials, efficient use of imported materials in
nonresources-based industries can help improve domestic value-added content much easily if it is done
through improvement in labour productivity.
References
Anuwar Ali and Tham S.Y. (1993) Domestic investment and foreign direct investment: Seeking the right
balance. Presented at MIER 1991, National Outlook Conference, 7-8 Dec. Kuala Lumpur.
Bank Negara Report (Various years) Ministry of Finance: Malaysia.
Department of Statistics (Various years) Malaysian Input-Output Tables. Putrajaya: Kuala Lumpur.
Department of Statistics (Various years) Industrial Manufacturing Survey. Putrajaya: Kuala Lumpur.
Leontief, W. (1966) Input-output economics. Oxford University Press: New York.
Malaysia (1991) The Sixth Malaysia Plan, 1991-1995, National Printing Department. Kuala Lumpur.
Malaysia (2006) The Ninth Malaysia Plan 2001-2005, National Printing Department. Kuala Lumpur.
Malaysia (2006) Malaysia economic statistics-time series 2005, Department of Statistics, Putrajaya: Kuala
Lumpur.
O’Brien, L. (1993) Malaysian manufacturing sector linkages. In Jomo K.S. (eds). Industrializing
Malaysia: Policy, Performance, Prospects. Routledge: London and New York.
Rokiah Alavi (1996) Industrialization in Malaysia:Import Substitution and Infant Industry in Malaysia.
Routledge: London and New York.
Ten Raa, T., Debesh, C. and J. Anthony S. (1984) An alternative treatment of secondary products in input
output analysis, Review of Economics and Statistics, 66, 1, 88-97.
Ten Raa, T. & Kop, J. P. (1990) The choice of model in the construction of input-output coefficients
matrices. International Economic Review, 31, 1, 213-227.
Tham, S.Y. (1996) Productivity, growth and development in Malaysia. The Singapore Economic Review,
40, 1, 41-63.
Tsao, Y. (1985) Growth without productivity: Singaporean manufacturing the 1970s. Journal of
Development Economics, 18, 25-38.
UNCTAD, 2006. World Investment Report 2006. FDI from developing and transition economies:
implications for development, United Nations: New York and Geneva.
United Nations: Inter-Secretariat Working Group on National Accounts (1993). System of National
Accounts (SNA), Chapter 16: Price and Volume Measures.
United Nation, (1967) statistical commission. Proposals for the Revision of System of National Accounts
(SNA), 1952, Document E/CN.3/356.
Zainal Aznam Yusof and Phang Hooi Eng (1994) Market structure and factor productivity in the
manufacturing sector in Malaysia. Bank Negara Malaysia: Discussion Papers 25, Bank Negara, Kuala
Lumpur.
Zarina Zainal Abidin and Shariman Alwani (1994) Growth, inflation and potential output, Bank Negara
Malaysia: Discussion Papers 33, Bank Negara, Kuala Lumpur.
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Proceedings of Applied International Business Conference 2008
Appendix 1: Resources and nonresources-based industries, and export and domestic-oriented
industries
Resources-based industries
Nonresources-based industries
Vegetable, animal oils and fats
Textiles, wearing apparel and leather
Other food processing, beverages and Tobacco
Electronics
Rubber processing and products
Basic metal industry
Paper and paper products, printing and publishing
Metal products
Industrial chemicals, fertilizers and plastics products
Transport equipment
Wood products including furniture
Manufacture of machinery
Petroleum products, crude oil, coal
(except electrical)
Non-metallic mineral products
Electrical machinery
Off-estate processing
Export-oriented industries
Domestic-oriented industries
Electrical and electronic product
Food products, beverages and tobacco
Rubber products
Paper and paper products
Wood, wood products
Plastic products
Textiles, wearing apparel and leather
Chemical and chemical product
Petroleum products
Transport equipment
Machinery and equipment
Basic metals and fabricated metal
Scientific instruments
Non-metallic mineral
Off-estate processing
Source: Malaysia (2006)
Note: The classification of resources and nonresources-based industries, export and domestic-oriented
industries are based on the EPU.
Appendix 2: Relative efficiency of domestic and imported intermediate inputs, 1983-2000
Domestic intermediate input
Imported intermediate input
Resource-based industry
(1)
(2)
1. Preserved food
2. Oils and fats
3. Grain mill products
4. Bakery, confectionary
5. Other foods
6. Animal feeds
7. Beverages
8. Tobacco
9. Wood products
10. Furniture and fixtures
11. Paper and printing
12. Industrial chemicals
13. Paints and lacquers
14. Other chemical products
15. Petroleum and coal
16. Processed rubber
17. Rubber products
18. Plastic products
19. China, glass and clay
20. Cement, lime plaster
21. Other non-metal mineral
Number of industry: Efficient
Inefficient
83-87
0.036
0.077
0.128
-0.224
0.078
0.172
-0.091
0.049
-0.082
0.028
-0.058
0.159
0.186
-0.119
0.462
-0.425
0.056
-0.225
0.190
0.324
-0.013
8 (38.1)
13 (61.9)
87-91
91-2000
83-87
87-91
-0.699
0.154
-0.100
-0.725
0.138
0.052
-0.040
0.283
0.423
0.196
-0.071
0.480
0.259
-0.142
-0.293
0.349
0.157
0.135
-0.089
0.317
-0.704
0.008
-0.070
-0.526
0.210
-0.119
-0.171
0.421
-0.690
-0.231
-0.150
-0.558
0.077
0.250
-0.257
0.246
-0.705
-0.399
-0.133
-0.667
-0.027
-0.009
-0.223
0.068
0.028
0.128
-0.382
0.166
-0.032
0.012
0.038
0.189
-0.006
-0.227
-0.177
0.152
0.213
-0.440
0.179
0.237
0.454
0.223
-0.465
0.484
-0.123
-0.035
-0.107
0.010
-0.092
-0.252
-0.256
0.125
-0.250
-0.099
0.052
-0.202
0.089
0.140
-0.083
0.285
-0.098
0.128
-0.108
0.112
11 (52.4) 10 (47.6) 18 (85.7) 5 (23.8)
10 (47.6) 11 (52.4) 3 (14.3) 16 (76.2)
Weighted
average
of
0.009
-0.089
proportionate
change
in -0.025
resources-based industry
Domestic intermediate input
Nonresources-based industry
350
-0.236
0.150
91-2000
-0.060
-0.147
-0.055
-0.243
-0.031
-0.251
-0.212
-0.450
0.055
-0.383
-0.039
-0.032
-0.160
-0.434
-0.411
0.022
-0.163
-0.311
-0.213
-0.019
0.074
18 (85.7)
3 (14.3)
-0.198
Imported intermediate input
Proceedings of Applied International Business Conference 2008
83-87
87-91
91-2000
1. Meat and dairy products
0.057
-0.517
0.214
2. Textiles
-0.058
-0.011
0.094
3. Wearing apparel
-0.018
-0.127
-0.098
4. Basic metal products
-0.006
0.139
0.081
5. Other metal products
-0.054
-0.216
0.071
6. Non-electrical machinery
-0.166
-0.412
-0.583
7. Electrical machinery
-0.388
-0.574
-0.090
8. Motor vehicles
0.515
-0.584
-0.082
9. Other transport equipment
0.532
0.067
0.043
10. Other manufacturing
-0.302
-0.226
0.056
Number of industry: Efficient
7 (70.0)
8 (80.0) 4 (40.0)
Inefficient
3 (30.0)
2 (20.0) 6 (60.0)
Weighted
average
of
-0.403
-0.255
proportionate
change
in -0.419
nonresources-based industry
Non manufacturing
Domestic intermediate input
83-87
-0.106
-0.172
-0.348
-0.165
-0.100
-0.188
-0.436
0.353
0.258
-0.402
8 (80.0)
2 (20.0)
87-91
-0.468
0.184
0.021
0.290
-0.054
-0.316
-0.407
-0.462
0.075
-0.124
6 (60.0)
4 (40.0)
91-2000
0.181
-0.078
-0.221
0.041
-0.121
-0.637
-0.198
-0.285
-0.121
-0.118
8 (80.0)
2 (20.0)
-0.504
-0.253
-0.346
Imported intermediate input
3
Other sectors
-0.037
0.060
-0.013
-0.149 0.141
-0.178
Source: (1) and (2) are estimated from equation (4)
Note: (1) and (2) estimated by average proportionate change. 3 Average proportionate changes of other
sectors are equal to the weighted average of proportionate change of other sectors. Figure in ( )
indicated percentage. A negative sign shows improvement in relative efficiency, and positive sign
shows relatively inefficient of the input used.
Endnotes:
1
‘use’ matrix refers to the use of commodities by producing industry, and ‘make’ matrix shows the
quantities of each commodity made by each industry.
2
Zainal Aznam Yusof and Phang (1994) demonstrated that the largest component of cost in Malaysian
manufacturing sector is the cost of raw materials.
3
imported raw materials constituted 20% of the total raw materials utilized in resources-based industries
while in nonresource-based industries it goes to as much as 60% (Annual Report of Bank Negara, 2005).
4
Annual Report of Bank Negara in 2006.
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