From Farms to Factories and Firms : Structural Transformation and Labor Productivity Growth in Malaysia

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• This study aims to provide a quantitative and integrated analysis of long-term structural transformation and labor productivity growth in Malaysia. Using data from the Department of Statistics Malaysia from 1987 to 2018 and decompositions that take account of the static and dynamic efficiency gains from labor reallocation, it documents that Malaysia has undergone structural transformation from an agriculture-driven to a services-driven economy. However, in contrast to common perceptions, the country's impressive growth in output per capita over the past three decades can largely be attributed not to its structural transformation but instead to sustained growth in within-sector labor productivity. At 3 percent, the contribution of between-sector reallocation of labor to growth in output per capita in Malaysia has been relatively low. Accordingly, together with efforts to spur the more productive reallocation of labor across sectors and positively affect the employment rate, the main policy challenge for Malaysia going forward will be to achieve sustainable labor productivity growth within various sectors.

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• Amanina Abdur Rahman is an Economist in the Social Protection and Jobs Global Practice at the World Bank. In this role, she engages in policy dialogue with the Malaysian government in the areas of jobs, labor markets, migration, and social protection. Prior to joining the World Bank, she completed a PhD in economics at Monash University Malaysia, where she taught economics and statistics. Amanina was also a visiting researcher at Erasmus University Rotterdam.

  Achim Schmillen is the World Bank Practice Leader for Human Development for Indonesia and Timor-Leste. His experience spans high quality analytic work and internationally visible research; extensive advisory activities and high-level policy dialogue; and hands-on operational field work and technical assistance in China, Germany, Indonesia, Malaysia, the Philippines, the United States and other countries. Achim joined the World Bank in 2013 through the Young Professionals Program and initially worked in the South Asia Human Development Unit and then in the Social Protection and Jobs Global Practice. Previous work experience includes appointments with America's National Bureau of Economic Research and the research institute of Germany's Federal Employment Agency. He holds a Ph.D. in economics from the University of Regensburg and was a visiting researcher at the University of California, Berkeley and a postdoctoral researcher at the University of California, Los Angeles.