Globalization and Total Factor Productivity Growth in the Malaysian Construction Sector

The process of globalization is happening so quickly thereby leading to rapid changes, particularly in communication and information technology. This situation has caused the economy to become interdependent. Basically, the process of globalization will improve efficiency and productivity of economic activities. However, the process of globalization may have a positive or negative effect on the TFP growth for different economic sectors. This paper aims to investigate the effect of globalization on TFP growth of the construction sector based on the data from the Construction Survey Malaysia collected by the Department of Statistics Malaysia. The analysis utilizes panel data of 1990-2009 for four construction subsectors, namely, residential buildings, non-residential buildings, civil engineering and special construction activities. TFP growth is obtained from DEA-Malmquist approach and this variable is used as dependent. The globalization indicators like foreign direct investment (FDI), foreign workers and economic openness are used as independent variables in the TFP model. The static panel data approach is adopted in running the models. The results show that all the globalization indicators positively and significantly affect the TFP growth of the construction sector.

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