Vertical specialisation and backward linkages: Reconsidering malaysian manufacturing development

Malaysia has undergone substantial transformation,shifting from primary commodity to manufacturing production in about five decades since independence. The government is currently concerned with shifting from a middle to high income economy. The Tenth Malaysia Plan (2011-2015) has identified 12 key drivers of economic activities that will serve to propel the country toward a high income economy. Of these 12 activities,only palm oil and related products,electrical and electronics (e e) and information and technology (IT) sub-sectors are related to manufacturing,while others are services. The objective of this paper is to identify manufacturing sectors that can be further developed to facilitate economic growth. Using Hummel s vertical specialisation index and Rasmussen s backward linkage index,we divide the manufacturing sector into four main groups,using the 2005 Input-Output table of Malaysia. Identifying these groups of industries will enable the government to focus not just on the palm oil and related products,e e and IT sub-sectors alone,but to diversify to other subsectors that have a great potential to facilitate the shift to a highincome economy.