Human Capital and the Development of Manufacturing Sector in Malaysia

The First Industrial Master Plan (IMP1), 1986-1995 was introduced by the Government of Malaysia to accelerate the development of manufacturing sector in potential industries with a strategy of export-orientation. In the latest or the Third IMP, 2006-2020, industrialisation in Malaysia is riding on the theme “Malaysia-Towards Global Competitiveness.” In realising the existing series of industrial master plans, this paper is mainly aimed at examining the components of human capital and discussing their roles in achieving sustainable industrial development. For analysis purpose, a single-equation regression model of Malaysia’s development of manufacturing sector is formed, which covers the period from 1981 to 2010. The findings highlight the significance of human capital in which the variable of employment has the highest elasticity in contributing to the share of gross domestic product (GDP) of manufacturing sector. It is followed by labour productivity and human capital investment in education and health. Increasing in the number of job creations is expected to increase production of output to meet the market demand of local people and for exports. Moreover, increasing in labour productivity reduce cost of production and investment in education and health programmes assist in strengthening the skills, knowledge and capabilities of individual workers in the sector. The development of manufacturing sector clearly needs the development of human capital, which is an important input for the growth of output in a country. Cooperation between private sector and relevant institutions is thus encouraged to improve and upgrade human skills and talents in industrial activities. By this way, human capital can be enhanced to increase value-added products in various industries