20 YEARS OF MALAYSIAN ECONOMY: A STRUCTURAL ANALYSIS USING INPUT-OUTPUT

APPROACH

LAI KAH LEE SHI XIAN

PUA HONG YUAN RAYMOND NG YAO HUI

TIM CHIA CHENG

BACHELOR OF ECONOMICS (HONS)

FINANCIAL ECONOMICS

UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF BUSINESS AND FINANCE

DEPARTMENT OF ECONOMICS

APRIL 2015

GROUP 3

20 YEARS OF MALAYSIAN ECONOMY: A

STRUCTURAL ANALYSIS USING INPUT-OUTPUT

APPROACH

BY

LAI KAH

LEE SHI XIAN

PUA HONG YUAN

RAYMOND NG YAO HUI

TIM CHIA CHENG

A research project submitted in partial fulfillment of the

requirement for the degree of

BACHELOR OF ECONOMICS (HONS)

FINANCIAL ECONOMICS

UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF BUSINESS AND FINANCE

DEPARTMENT OF ECONOMICS

APRIL 2015

ii

Copyright @ 2015

ALL RIGHTS RESERVED. No part of this paper may be reproduced, stored in a

retrieval system, or transmitted in any form or by any means, graphic, electronic,

mechanical, photocopying, recording, scanning, or otherwise, without the prior

consent of the authors.

iii

DECLARATION

We hereby declare that:

(1) This undergraduate research project is the end result of our own work and that

due acknowledgement has been given in the references to ALL sources of

information be they printed, electronic, or personal.

(2) No portion of this research project has been submitted in support of any

application for any other degree or qualification of this or any other university, or

other institutes of learning.

(3) Equal contribution has been made by each group member in completing the

research project.

(4) The word count of this research report is 18559 words .

Name of Student: Student ID: Signature:

1. Lai Kah 12ABB06033

2. Lee Shi Xian 12ABB01702

3. Pua Hong Yuan 12ABB03716

4. Raymond Ng Yao Hui 12ABB02100

5. Tim Chia Cheng 12ABB01915

Date: 17th

April 2015

iv

ACKNOWLEDGEMENT

First and foremost we would like to thank University Tunku Abdul Rahman

(UTAR), for allowing us to carry out this research and providing us with the

Datastream a database system for us to search for our relevant data.

We would also like to express our gratitude to our project supervisor, Dr. Eng

Yoke Kee, who has been guiding and helping us with any problems that we faced

throughout our Final Year Project. We would also like to thank her for her kind

words during our Viva presentation. Besides that, we would also like to extend

our gratitude to our FYP coordinator Miss Lim Shiau Mooi for providing us with

the guidelines for our project and Viva presentation.

Last but not least, we would like to thank all the lecturers in UTAR who is

teaching and who has taught us in the past. They have provided us with the

knowledge that is necessary to make this project a success. Furthermore, we

would also like to thank our friends and our respective families who have been

providing us with great moral support throughout our project. Finally we would

like to thank the Department of Statistics Malaysia who provided us the data

needed for this project and all the past researchers who did research on topics that

are relevant to our topic for providing a guideline for our methodology.

v

TABLE OF CONTENTS

Page

Copyright Page......................................................................................................... ii

Declaration .............................................................................................................. iii

Acknowledgement .................................................................................................. iv

Table of Content ..................................................................................................... v

List of Tables ........................................................................................................ viii

List of Figures ......................................................................................................... ix

List of Abbreviations ............................................................................................... x

Preface..................................................................................................................... xi

Abstract .................................................................................................................. xii

CHAPTER 1 RESEARCH OVERVIEW ................................................................ 1

1.0 Introduction ................................................................................ 1

1.1 Structural Analysis ..................................................................... 1

1.2 The Transformation of Malaysian Economy ............................. 2

1.2.1 Background of the Study ............................................ 2

1.2.2 Overview of Malaysias Major Industrial Policies ..... 3

1.2.3 The Trend of Industrial Production in Malaysia ......... 5

1.3 Problem Statements ................................................................... 8

1.4 Research Objectives ................................................................. 10

1.4.1 General Objectives .................................................... 10

1.4.2 Specific Objectives ................................................... 10

1.5 Significance of the Study ......................................................... 11

1.6 Chapter Layout......................................................................... 12

vi

CHAPTER 2 LITERATURE REVIEW ............................................................... 13

2.0 Introduction .............................................................................. 13

2.1 A Review for the Evolution of Input-Output Analysis ........... 13

2.2 A Review for Past Studies on the Structure of Production ..... 22

2.3 Conclusion .............................................................................. 24

CHAPTER 3 RESEARCH METHODOLOGY .................................................... 25

3.0 Introduction .............................................................................. 25

3.1 Input-Output Methodology ..................................................... 25

3.1.1 Input and Output Coefficients .................................. 26

3.1.2 Input and Output Leontief Inverses ......................... 27

3.1.3 The Backward and the Forward Linkages ............... 30

3.1.4 Coefficients of Variation .......................................... 32

3.2 Data Sources ............................................................................ 33

3.3 Conclusion .............................................................................. 35

CHAPTER 4 RESEARCH RESULTS AND INTERPRETATION ..................... 36

4.0 Introduction .............................................................................. 36

4.1 Measures of Forward and Backward Linkages ........................ 37

4.2 Structure of Production of the Malaysian Economy ................ 41

4.2.1 Primary Sector .......................................................... 41

4.2.2 Secondary Sector ...................................................... 44

4.2.3 Tertiary Sector .......................................................... 49

4.3 Identification of the Key Industries ....................................... 52

4.4 Conclusion ............................................................................... 69

CHAPTER 5 CONCLUSION, IMPLICATIONS AND RECOMMENDATIONS

........................................................................................................ 70

5.0 Introduction .............................................................................. 70

vii

5.1 Concluding the Major Findings .............................................. 70

5.2 Policy Implications ................................................................. 72

5.3 Limitations and Recommendations for Further Research ...... 74

REFERENCES ...................................................................................................... 75

viii

LIST OF TABLES

Page

Table 3.1: Typical Input-Output Table............................................................... 25

Table 3.2: Reclassification of Industry .............................................................. 34

Table 4.1: Sensitivity of Dispersion Index Forward Linkage ......................... 37

Table 4.2: Power of Dispersion Index Backward Linkage ............................. 39

Table 4.3: The Ranking of Power of Dispersion Index of Backward Linkage .. 53

Table 4.4: The Ranking of Sensitivity of Dispersion Index of Forward Linkage

............................................................................................................................ 54

Table 4.5: The Ranking of Coefficient of Variation of Backward Linkage Vj .. 55

Table 4.6: The Ranking of Coefficient of Variation of Forward Linkage Vi.....