Impact of Air and Water Pollutant Emissions on Productivity Growth of Malaysia’s Manufacturing Sector

The manufacturing sector has been the engine of growth for the Malaysian economy since the economic structural transformation in 1987. The sustainability of high economic growth depends on the productivity through the enhancement of total factor productivity. Total factor productivity development strategies emphasise on quality of the workforce, raw materials, capital structure and technical progress. The improvement and slowdown of total factor productivity (TFP) contribution to the manufacturing sector industries in terms of average annual growth rates depend on the quality of inputs used in the production of the manufacturing sector industries, that were reported to be of low quality and insufficient. The results of the study confirm that productivity growth of Malaysia’s manufacturing sector is an input driven rather than TFP driven and mainly dependent on Foreign Direct Investment (FDI). The performance of productivity growth after the financial crisis of 1997 was found to be negative during 1998. In addition, it was also found that the slowdown of labour productivity growth of the manufacturing sector industries in terms of average annual growth rates was due to the quality of labour involved in the manufacturing sector industries. Meanwhile, the study contributes to the literature available in the area of growth accounting method in terms of calculating the real TFP growth by internalising the pollutant emissions beside the input terms in the production function. By this technique total factor productivity growth becomes an indictor of green productivity, which puts into consideration economic development and environmental protection. Furthermore, the factors affecting the output growth of the manufacturing sector as identified using Jorgensen et al model are the individual contributors to capital, labour, material, pollutant emissions and the combined contribution of the quality of these inputs expressed as the TFP. In fact, the higher level of pollutant emissions generated by the manufacturing sector slowed the growth rates of TFP by internalised the pollutant emissions beside the traditional input terms in the form of undesirable output produced beside the original products of the sector in the model as shown in the results of model 1. While the factors identified as influencing the labour productivity of the manufacturing sector (that is indicated as a good measure of standard of living rather than output that measure the output per person) as in Dollar and Sokoloff model are the individual contributors to the capital deepening, material-labour ratio, pollutant emissions intensity and the simultaneous contribution of the quality of these factors expressed as the TFP per unit of labour. The pollutant emissions per worker were found to be of more impact into slowing down the contribution of TFP per unit of labour (technological progress) of the manufacturing sector compared with that of the first model. This is due to the problems of labour, during the entire period of the study that witnessed the rapid industrial development in the Malaysian economy, which generated higher level of pollutant emissions as a result of the industrial activities. Finally, combining the results of the two models this study found that industrial activities are related to the growth rate of pollutant emissions generated in the production process of the manufacturing sector. This appears in the form of undesirable output that had slowed the productivity growth of the manufacturing sector in general and the contributions of total factor productivity of the manufacturing sector in particular.

Preview PDF 549742_FEP_2004_8.pdf Download (158kB)

Actions (login required)

View Item