Growth Channels, Imported Inputs and Intra-Industry Trade: A Panel Data Analysis on Malaysian Manufacturing Sector
Thesis or dissertation
University of Exeter
The thesis investigates three selected issues pertaining to the Malaysian Manufacturing sector namely industries growth channels, imported inputs and intra-industry trade determinants. For each of this issue we have adopted a static and a dynamic estimation approach. In the static estimation the result presented are based on Ordinary Least Square, Fixed and Random Effect besides Generalized Least Square estimations. Meanwhile in the dynamic estimation, we focused on result of the difference and system GMM estimations. For industries growth channels, the findings suggest that at aggregate industry level, fixed capital formation and human capital channels are always statistically significant regardless of the test applied either in static or dynamic models estimation. The significance of fixed capital formation is consistent with the strong and cumulative saving and investment condition in Malaysia which has had a significant effect on the capital formation of the country. Our findings for foreign direct investment channel might suggest that Malaysian manufacturing industries has had problem to absorb the transfer of technology that had impede the growth of the sector. Meanwhile, a negative association between government consumption and economic growth might indicate that the government expenditures pattern might have distort the allocation of resources in the economy especially the manufacturing sector. Our findings suggest that the nature of the relationship between manufactured exports and economic growth is negative which might indicate that Malaysian manufactured exports were actually driven by the economy growth. Further analysis at individual export-oriented industry level shows that manufactured exports and government consumption channels have influence growth in both resource-based and non-resource based industries. Our analysis also include trade liberalization estimation which suggest that trade liberalization has a positive causality relationship with the growth of industries through all selected channels. Regarding the imported inputs analysis, the dynamic estimation results show that imported inputs have a positive relationship with industries owned by the non-Malaysian, but not for industries owned by the Malaysian. Our finding for industries owned by the Malaysian is consistent with the government actions that have strongly encouraged them to use domestic inputs through implementation of various incentives. This is because the implementation of the first round of the Import Substitution phase (1957-1967), had created an industrialization era which relied heavily on imported inputs and machines which resulted in distortions in domestic product prices, low value added, poor domestic economy linkages and inequalities in income and employment. On the contrary, our findings for all static and dynamic models suggest that imported input have a positive relationship with the growth of industries owned by non-Malaysian. This result might indicate that industries whose import their intermediate inputs have increased their growth performance and productivity. Meanwhile, at firms’ level, imported inputs suggest a positive relationship with firms owned by both Malaysian and non-Malaysian. Our analysis again include trade liberalization estimation which show that trade liberalization have a positive relationship with the imported inputs content in industries owned by Malaysia while at firms level, only non-tariff index shows a positive relationship. Last issue relates to the intra industry trade in Malaysian manufacturing sector. Our findings suggest that the gross domestic products variables which proxies the market size of a country, the similarity in income and the relative size effects between Malaysia and its trading partners has had influence the share of intra industry trade of the manufactured goods. As for the other country-characteristic determinants, we found a positive relationship between foreign direct investment and the share of intra-industry trade which support the theoretical framework proposed by Grubel and Lloyd (1975) and Greenaway and Milner (1986). Similarly, distance and trade imbalance also indicates a significant negative relationship with the trade share. Meanwhile at individual industry level, our findings suggest that a majority of the gross domestic product variables indicate a statistically significant relationship with the trade share in the dynamic estimation models for the wood, textiles and electrical and electronic industries. Contradictory, the maximum value of gross domestic products has a statistically significant relationship in the static estimation models for the rubber, textiles and electrical and electronic industries, respectively. Meanwhile, the other country-characteristic determinants such as foreign direct investment, trade imbalance and trade orientation have a statistically significant relationship in both static and dynamic estimations models in a majority of the Malaysian export-oriented industries. On the other hand distance, border and asean have a statistically significant relationship in only the static estimation models for the industries.
Malaysian Ministry of Higher Education
PhD in Economics