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Learning by doing, international trade and economic growth : An empirical case study of Malaysia

Taylor, Ranald James (2002) Learning by doing, international trade and economic growth : An empirical case study of Malaysia. PhD thesis, Murdoch University.

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Studies on the growth of developing countries have not paralleled those of developed countries, primarily because of lack of reliable data and differences in institutional peculiarities, which in tum render the traditional analytical tools inappropriate for examining the economic growth of developing countries. The recent expansion of the endogenous growth paradigm has, to some extent, addressed this need for better tools for analysing the growth of developing countries. Unfortunately, these 'new' theories have grown largely independently of or in isolation from empirical findings. It is the purpose of this study to bridge the gap between theories and facts by testing the growth proposition on Malaysia.

This empirical research aims to test and explain the economic growth of Malaysia, paying particular attention to the evolution of its production structure, productivity growth, and technological progress. This sets it apart from the bulk of literature on Malaysia's economic development, which tends to be devoted to the description of facts. This study offers an extension to the existing forms of analyses on the economic development of Malaysia, including the 'popular' political economy approach.

Since growth is a dynamic and complex process and is based on the interplay between exogenous elements (such as sociological and political factors) and endogenous elements (such as the evolution of productivity and technological progress), this study's analytical framework is drawn from a combination of historical, neoclassical and endogenous perspectives. By offering better insights into the growth process, this thesis attempts to trace the whole growth path and not just the steady state, which most growth analyses tend to focus upon (Solow, 2000).

The examination of Malaysia's economic growth involves three stages. The first stage examines the importance of initial conditions in economic growth. A historical perspective will be utilised for this purpose because the counterfactual cannot be tested. There is also an emerging literature emphasising the incorporation of historical facts into the growth analysis (Solow, 1994; Nelson, 1996; Crafts, 1997; Setterfield, 1998; Lucas, 2000). The second stage employs an endogenous framework based on Kaldor's growth propositions to trace the evolution of Malaysia's production structure and employment patterns with respect to output growth.

The final stage involves the evolution of technological progress as captured by total factor productivity (TFP) growth. Most of the TFP estimations for the East Asian countries, including Malaysia, have been based on either the standard Cobb-Douglas production function or the growth accounting approach. The method presented in this thesis departs from them. Here, human capital and international trade are allowed to impact upon the coefficient of the capital share of output. The logic is that the value of the coefficient of capital will be lowered due to improvement in labour quality brought about by learning by doing, and technological progress embodied in foreign equipment made possible through international trade. The results show that the coefficient of capital share declined and the coefficient of labour increased when compared to the standard production function, which in tum translates into higher TFP. An important policy implication of these findings is that a weak R&D or knowledge base does not necessarily translate into lower economic growth as postulated by the recent expansion of the endogenous growth paradigm. Instead, the Malaysian experience has demonstrated that opening the economy up to the global communities could accelerate a country's TFP growth through learning by doing activities brought about by new technology embodied in new foreign capital equipment.

Publication Type: Thesis (PhD)
Murdoch Affiliation: Business, Information Technology and Law
Supervisor: Petridis, Ray and Lewis, Phillip
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