See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/305726929

Contribution of Economic Sectors to Malaysian GDP:

Chapter · January 2016

DOI: 10.1007/978-981-10-1458-1_17

CITATIONS READS

0 18,329

4 authors:

Ilyani Azer Hamnah Che Hamzah

Universiti Teknologi MARA Universiti Teknologi MARA
11 PUBLICATIONS   12 CITATIONS    6 PUBLICATIONS   0 CITATIONS   

SEE PROFILE SEE PROFILE

Siti Aishah Hasni Abdullah

Universiti Teknologi MARA Universiti Teknologi MARA
21 PUBLICATIONS   48 CITATIONS    7 PUBLICATIONS   2 CITATIONS   

SEE PROFILE SEE PROFILE

Some of the authors of this publication are also working on these related projects:

e-payment adoption View project

Loan Loss Provisions View project

All content following this page was uploaded by Ilyani Azer on 06 November 2017.

The user has requested enhancement of the downloaded file.

Chapter 17
Contribution of Economic Sectors
to Malaysian GDP

Ilyani Azer, Hamnah Che Hamzah, Siti Aishah Mohamad

and Hasni Abdullah

Abstract The agriculture, manufacturing and service sectors are important ele-
ments in any county’s economy. It has direct and significant contribution to gross
domestic product (GDP) and job creation, and provides crucial inputs for the rest of
the economy, thus having a significant effect on the investment of a country. This
paper empirically examines the relationship between manufacturing, agriculture,
services sectors and GDP per capita. It uses annual data from the year 2000 until
2010. The research methodology incorporates from time series data gathered from
Malaysia Economic Statistics 2013 published by Department of Statistics,
Malaysia. The data was analysed using Correlational and Multiple Regression
Analysis to examine the relationship between the dependent variable and the
independent variables. It is found that manufacturing and service sectors are related
to real GDP per capita while agricultural sector did not show a significant rela-
tionship towards GDP per capita.

Keywords Agriculture
Gross domestic products (GDP)
Manufacturing

Services sectors

I. Azer (&)
H. Che Hamzah
S.A. Mohamad
H. Abdullah

Faculty of Business Management, Universiti Teknologi MARA Pahang,
26400 Bandar Tun Razak Jengka, Pahang, Malaysia
e-mail: ilyani_azer@pahang.uitm.edu.my
H. Che Hamzah
e-mail: hamnah@pahang.uitm.edu.my
S.A. Mohamad
e-mail: sitia@pahang.uitm.edu.my
H. Abdullah
e-mail: hasniabd@pahang.uitm.edu.my

© Springer Science+Business Media Singapore 2016 183

M.A. Abdullah et al. (eds.), Regional Conference on Science,
Technology and Social Sciences (RCSTSS 2014),
DOI 10.1007/978-981-10-1458-1_17
184 I. Azer et al.

1 Introduction

Gross domestic product (GDP) is defined as an aggregate measure of production

equal to the sum of the gross values added of all resident institutional units engaged
in production. The GDP growth rate is the pivotal indicator of economic health.
If GDP is growing, so will business, jobs and personal income. An increase in GDP,
the market value of all the products and services produced annually within a
country, contribute to economic growth. What is desirable in an economy is to
increase GDP and achieving economic growth consequently (Sandalcilar and
Altiner 2012). The manufacturing and services sectors played dominant roles in the
Malaysia’s economy, and the contribution of the agricultural sector to economic
growth seems to be trivial. It can be explained by the effects of transformation from
agricultural economy into industrial economy of Malaysia since 1970s. Since late
1970s, Malaysia’s economic development strategy is based on three long‐term
policies which are the New Economic Policy (NEP) 1970–1990, the National
Development Policy (NDP) 1990–2000, and the National Vision Policy
(NVP) 2001. By 1990, Malaysia had met the criteria as a Newly Industrialized
Country (NIC) which means 30 %of exports consisting manufactured goods
(Hussin and Ching 2013). Under current Prime Minister Dato’ Seri Najib, Malaysia
is attempting to achieve high-income status by 2020 and to move farther up the
value-added production chain by attracting investments in Islamic finance, high
technology industries, biotechnology, and services. Today, Malaysia is a high
middle income country with a diversified economy dominated by services (55 % of
GDP) and manufacturing (25 %), with mining (8 %) and agriculture (7 %) fol-
lowing in the distance (IMF 2015).
Agriculture sector can be generalized into two categories which are industrial
commodities and food subsector. Industrial commodities is under the supervision of
Ministry of Primary Industries (KPU) provision which is responsible in ensuring
high quality production of pepper, palm oil, rubber, cocoa and wood and timber. On
another note, Ministry of Agriculture and Agro-based Industry (MOA) must
oversee crop production, livestock and fisheries activities. The demand side offers
good prospects for Malaysian agriculture. Analyst forecast that food needs will rise
at extraordinary rates due to rapid increase in population, rising level of nutrition as
income levels will increase and changing in consumption (Tengku Ahmad and
Suntharalingam 2009).
Manufacturing can be defined as the production of goods or items by using
machines, equipment and labour force. Manufacturing activities vary from handi-
craft items to technology gadgets. But, the term is applied to the process of
industrial production in which raw materials are transformed into finished goods
and ready for sale. According to Kaldor (1967), manufacturing is an engine of
economic growth as industrial goods have a higher-income elasticity of demand.
Manufacturing sector in Malaysia contributes almost 80 % of overall country’s
export and besides, Malaysia also known as the 21st largest exporting nation in the
world (The German Chamber Network 2012).
17 Contribution of Economic Sectors to Malaysian GDP 185

Service sector is the fastest growing sector in the world GDP, where the sector
itself has collectively accounted for about two third of the world services trade
(Wing et al. 2007). Services required face to face interaction. These include
transport, trade, hotel, restaurant, beauty shops, barbers, education, health and other
government and community services (Ghanii 2011). The seven NKEAs announced
in the Economic Transformational Plan from the services sector are financial ser-
vices, wholesale and retail trade, tourism, business services, communication content
and infrastructure, education and healthcare (19th Malaysia Productivity Report
2012). The process of development usually coincides with a growing role of ser-
vices in the economy, thus services constitute an increasing percentage of GDP in
nearly all developing countries.

2 Literature Review

Based on study by Kamaruddin and Masron (2010) that examines the structural
changes in the Malaysian economy by utilising two economics tools, namely, the
econometric approach using the Autoregressive Distributed Lag (ARDL) model
and the input–output approach using structural decomposition analysis (SDA),
found that the importance of the domestic consumption on manufacturing sectors
effect the growth in the economy. As referring to study by Anwar (2008), manu-
facturing sector has long been regarded as the main driver of Singapore’s
impressive economic growth. Prior to the emergence of China as a major supplier of
manufactured goods, the Singaporean manufacturing sector was facing stiff com-
petition from regional economies such as Malaysia and Thailand. He found that, in
addition to foreign investment, human capital is also playing a significant role in
foresting Singaporean manufacturing sector growth.
In the study by Rahman et al. (2011) that used causality Wald tests statistics to
examine the causal relationship examine the causal relationship among GDP,
agricultural, industrial and service sector output for Bangladesh using time series
data from 1972 to 2008. The results indicate that agricultural and industrial sector
are the influencing factor of the GDP of Bangladesh and vice versa, where service
sector does not influence the GDP but GDP influences the service sector to grow
up.
Based on the results by Katircioglu (2006) suggested that agricultural output
growth and economic growth as measured by real GDP growth which are stationary
at their levels, thus, naturally co‐integrated. They are in long-run equilibrium
relationship. And second, there is feedback relationship between these variables that
indicates bidirectional causation among them in the long-run period. Subramaniam
and Reed (2009) estimated an econometric model that incorporates the linkages
among agriculture, manufacturing, service and trade sectors using a vector error
correction model for Poland and Romania.
Jatuporn et al. (2011) investigates the causality between agriculture and eco-
nomic growth in Thailand over the period of 1961–2009. A Granger causality
186 I. Azer et al.

approach and the Wald coefficient statistic are utilized to reveal a long-run causal
relationship and impact transmission between the variables. Based on the time
series analyses, a long-run relationship and size impact are detected running from
agriculture to economic growth, and vice versa. It includes with the generalized
variance decomposition show that agriculture existed in a long-term stable in
economic growth while economic development encourages the growth of agricul-
ture as a whole.
Hussin and Ching (2013) examine the contribution of three economic sectors
(which are agricultural sector, manufacturing sector and service sector) to economic
growth in Malaysia and China by using time series data from year 1978 until 2007.
Augmented Dickey Fuller (ADF) unit root test is used and it showed that the time
series data are stationary at the first differences. The correlation analysis indicated
that agriculture sector, manufacturing sector and service sector had positive rela-
tionship with GDP per capita in Malaysia and China. In addition, results of model
multiple regressions showed that services sector generated the highest contribution
to Malaysia’s economic growth while manufacturing sector provided the biggest
contribution to China’s economic growth.

3 Methodology

The data used in this study were secondary data obtained from Malaysia Economic
Statistics 2013 that published by Department of Statistics, Malaysia. This study
uses annual time series data from 1990 to 2010 and been analysed using SPSS
version 20. As this study examines the relationship between manufacturing, agri-
culture, services sectors and GDP per capita, secondary data are appropriate for the
study.

4 Findings and Discussion

The study examines the relationship between economic sectors which is agriculture,
manufacturing and services; and gross domestic products of Malaysia for the year
2000 until 2010. Durbin Watson is used to test whether serial correlation is present
in the error terms in a regression. From the result, the Durbin Watson test is at 1.7
and a value near 2.00 indicates non-autocorrelation. Correlation analysis and
multiple regression analysis were used to examine the relationship between the
dependent variable and the independent variables. The multiple regression is con-
ducted to test whether the three independent variables are significantly related to
gross domestic products and to determine which variable is most important to
Malaysian economic sector.
17 Contribution of Economic Sectors to Malaysian GDP 187

Table 1 Model summary of the investigated variables

Model Coefficient t-statistic p-value
B Std. error
(Constant) 7450.693 932.214 7.992 0.000
Agriculture −0.035 0.065 −0.538 0.607
Manufacturing 0.049 0.006 7.723 0.000
Services 0.019 0.003 5.633 0.001
a
Dependent variable: GDP

The result of multiple regressions for all independent variables towards depen-
dent variable indicates that all the three variables were able to explain the variance
of gross domestic products per capita. From the coefficient analysis of determina-
tion, as indicated in R2, the represented value of 99.8 %, variation in real GDP per
capita can be explained by these three independent variables and justified further
with the significant F-statistics (F = 1003.027, Sig. F = 0.000) value, strongly
support the result could not have occurred by chance.
The coefficients of manufacturing and service sectors are statistically significant
at the 95 % confidence level where the p-values are less than 0.05. This implies that
the manufacturing and service sectors are related to real GDP per capita. In addi-
tion, manufacturing and service sectors have positive relationship with real GDP
per capita due to positive values of the coefficients. Agricultural sector did not show
a significant relationship with economic growth of Malaysia and has negative
relationship with real GDP per capita due to negative coefficient value. By referring
to Table 1, the equation for the multiple regression analysis is:

Y ¼ b0 þ b1Ag þ b2Mf þ b3Serv

Y ¼ 7450:693  0:035Ag þ 0:049Mf þ 0:019Serv

whereby,

Y Real GDP per capita

Ag Share of agricultural sector to real GDP per capita
Mf Share of manufacturing sector to real GDP per capita
Serv Share of services sector to real GDP per capita

Agricultural sector did not show a significant relationship with GDP of Malaysia
while service sector is the largest contributor to Malaysia’s economic growth. The
interpretation of the coefficient of service is, if valued-added for the service sector
increases by 1 %, real GDP per capita is expected to increase by 0.02 %. Moreover,
if value-added for the manufacturing sector increases by 1 %, real GDP per capita is
expected to increase by 0.05 %. Hence, manufacturing and services sectors have
some impact on real GDP per capita in Malaysia. According to the results, man-
ufacturing sector is the highest contributor to real GDP per capita in Malaysia.
188 I. Azer et al.

5 Conclusion

This paper examines the three important economic sectors namely agriculture,
manufacturing and service sectors towards GDP per capita for the year 2000 until
2010. The correlational and multiple regression analysis are used in determining the
relationship of the independent and dependent variables. The manufacturing and the
services sectors are regarded as two main engines of the Malaysian economic
growth due to the significant relationship shown by both sectors.
Study by Anwar and Sam (2008) stated that; Singaporean economic growth is
also been determined as the two main components; that is manufacturing and
service sectors. Therefore, policy-makers should pay more attention to the
micro-scale unit for farmers and also overseas agribusiness in forms of the benefit
equivalence to agricultural societies to increase its contribution towards the eco-
nomic growth (Jatuporn et al. 2011).

References

19th Productivity report 2011/2012. (2012). Malaysia Productivity Corporation. ISSN:1394-410X.

Anwar, S., & Sam, C. Y. (2008). Services sector growth in Singapore. Singapore Management
Review, 30(2), 19–33.
Anwar, S. (2008). Foreign investment, human capital and manufacturing sector growth in
Singapore. Journal of Policy Modeling, 30(3), 447–453.
Ghanii, E. (2011). The service revolution. In Paper presented at ILO Conference, Geneva.
Hussin, F., & Ching, C. W. (2013). The contribution of economic sectors to economic growth: The
cases of Malaysia and China. International Journal of Academic Research in Economics and
Management Sciences, 2(2), 2226–3624.
IMF Country Report No. 15/59. (2015). International Monetary Fund Publication Services.
Jatuporn, C., Chien, L. H., Sukprasert, P., & Thaipakdee, S. (2011). Does a long-run relationship
exist between agriculture and economic growth in Thailand? International Journal of
Economics and Finance, 3(3), 227–233.
Kaldor, N. (1967). Strategic factors in economic development. Ithaca, NY: Cornell Univ Press.
Kamaruddin, R., & Masron, T. A. (2010). Sources of growth in the manufacturing sector in
Malaysia: Evidence from ARDL and structural decomposition analysis. Asian Academy of
Management Journal, 15(1), 99–116.
Katircioglu, S. T. (2006). Causality between agriculture and economic growth in a small nation
under political isolation: A case from North Cyprus. International Journal of Social
Economics, 33(4), 331–343.
Rahman, M. M., Rahman, S. M., & Wu, H. B. (2011). Time series analysis of causal relationship
among gdp, agricultural, industrial and service sector growth in Bangladesh. China–USA
Business Review, 10(1), 9–15.
Sandalcilar, A. R., & Altiner, A. (2012). Foreign direct investment and gross domestic product: An
application on ECO region (1995–2011). International Journal of Business and Social Science,
3(2), 189–198.
Subramaniam, V., & Reed, M. (2009). Agricultural inter-sectoral linkages and its contribution to
economic growth in the transition countries. In. Paper presented at the International
Association of Agricultural Economists Conference, Beijing, China.
 17 Contribution of Economic Sectors to Malaysian GDP 189

Tengku Ahmad, T. M. A., & Suntharalingam, C. (2009). Transformation and economic growth of
the Malaysian agricultural sector. Management Review, 4, 1–10.
The German Chamber Network. (2012). Market watch 2012. Electrical and Electronic Industry in
Malaysia. DE International. Retrieved on October 1, 2014.
Wing, B. C. L., Yee, O. A., & Yee, C. C. P. (2007). Malaysia’s services industry towards the
global environment. Retrieved from October 1, 2014. http://repo.uum.edu.my/2399/1/Bryan_
Lo_Ching_Wing.pdf

View publication stats