Sources of industrial growth using the factor decomposition approach: Malaysia, 1978-87

Malaysia has experienced a tremendous structural change as a result of its industrialization efforts. The present paper uses Chenery's factor decomposition method of analyzing sources of growth to examine structural change during the period of policy shift from inward-looking import-substitution to outward-looking export-promotion strategies. Using sectoral producer and import price indices to deflate 1983 and 1987 Malaysian transaction and import matrices to their 1978 bases, the paper found that: (1) the economy's growth was initially driven by domestic-demand expansion and subsequently by export expansion, (2) technological progress contributed insignificantly to the economy's growth, (3) sectorally, agriculture and manufacturing activities were driven by export expansion white mining and service activities by domestic demand expansion, and (4) like developing countries that typically experience structural problems due to a lack of inter-industrial linkages, Malaysia also developed an increasing reliance on intermediate and capital goods imports as its industrialization effort progressed.