Contribution of Technical Efficiency Change and Technical Change to Total Factor Productivity Growth in Electrical and Electronics Industry in Malaysia

The electrical and electronics (E E) industry contributes more than 60% of Malaysian manufacturing exports. The emergence of trade liberalization through Asian Free Trade Association (AFTA), North American Free Trade Association (NAFTA) and European Unions (EU) creates stiffer trade competition amongst the E E industry in the region and to be at the competitive edge, this industry must increase its efficiency. In this regards, total factor productivity (TFP) growth becomes relevant. An increase in TFP growth through technical efficiency change (TEC) will reduce cost of production and make the industry more competitive because it can produce higher output using same level of inputs. There are two components of TFP growth, namely, technical efficiency change (TEC) and technical change (TC). The impact of TFP growth on output growth will be more meaningful if contribution of TEC supersedes contribution ofTC because TEC will not incur additional cost of production. This paper attempts to analyze TFP growth in the E E industry at five digits of Malaysian Standard Industrial Classification (MSIC). Fifteen types of industries are covered in the analysis. The analysis will be based on the Manufacturing Survey data between 1995 and 2003 collected by the Department of Statistics Malaysia. The method of Data Envelopment Analysis (DEA) is utilized to get TEC and TC. The results from this study show that, contribution ofTC is higher than that of TEC in all sub industries under study. Nevertheless, trend analysis shows that during 1998 -2000 period TEC is higher than TC.