The dynamics of productivity of the manufacturing sector

This dissertation examines various determinants of productivity. First, it examines the effect of size on the performance of industries in Malaysia. Different proxies for size are used to see if it makes a significant difference to the results. Results show that: annual sales turnover is a better measure for size because it is not biased to capital intensive and labour intensive industries; the change in size of large industries seems to be able to explain more of the variations in output per labour compared to the medium and small ones. Second, it examines whether research and development has a long run relationship with total factor productivity of the manufacturing industries in the UK. R&D are decomposed into R&D capital by the industry's own enterprises, other industries' enterprises, and foreign R&D capital. Panel unit root and panel cointegration tests are performed on a panel of 20 industries during 1980--2002. I find R&D and productivity to be cointegrated in the long run. The elasticities of productivity with respect to these R&D variables show that the industries significantly benefit from other domestic industries and foreign R&D but not their own. Third, it re-examines the direction of the causality between exports and productivity for Malaysian industries by using the error-correction and Granger causality models. By including other variables like size and capital intensity in my models, I have captured the indirect effects besides the direct effects between exports and productivity. I find that these industries support the export-led growth hypotheses, not the growth-driven export hypothesis. However, a further look into the results indicates that there is a possibility of an indirect causality from productivity growth to export through size, as productivity causes size, and size in turn causes exports.