Role of Educational Attainment in Driving Productivity and Economic Growth in Malaysia
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UNIVERSITI MALAYSIA SARAWAK
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This research studies the influence of employed workers' educational attainment on sectoral labor productivity within the main sectors of the Malaysian economy, comprising agriculture, industry, and services—aiming to shed light on the role of educational quality in driving productivity and economic growth while addressing challenges posed by low-skilled labor and foreign worker employment. The study employs annual data from the World Bank and the Department of Statistics Malaysia, utilizing Vector Autoregressive (VAR), Autoregressive Distributed Lag (ARDL), and Nonlinear Autoregressive Distributed Lag (NARDL) models for an in-depth analysis of these relationships. The first objective is addressed via Model 1, which examines the impact of the educational quality of the employed workforce on Malaysian labor productivity from 1982 to 2023. The second objective involves Model 2—investigating the combined influence of educational quality and fixed capital on value-added agriculture during the same period—and Model 3, which investigates the impacts of both educational quality and the total foreign labor force on agricultural GDP spanning 1987–2023. The third objective, addressed by Model 4, explores the effect of workers' educational quality on the value-added industry during the period 1982–2023. The fourth objective digs deeper into sectoral labor productivity, with Models 5, 6, and 7 examining the influence of educational attainment across the agriculture, industry, and services sectors from 1991 to 2022 via ARDL estimations. Lastly, the fifth objective, utilizing Models 8, 9, and 10, studies the asymmetric effects of foreign worker employment and the impacts of low educational attainment on sectoral productivity for the same study period, using NARDL estimations. The findings reveal significant sectoral variations. Workers with secondary education consistently boost overall labor productivity, with significant positive impacts on the value-added industry for the period 1982–2023. iv Tertiary education positively influences industrial productivity in the long run but shows no causal relationship with overall labor productivity. Conversely, workers lacking formal education negatively impact value-added agriculture and long-term service productivity. Primary education exhibits a mixed effect, being negative for the first nine years but followed by a sustained positive impact over 41 years. The analysis underscores that fixed capital positively affects service productivity in the long run. The NARDL estimations reveal that positive changes in foreign worker employment adversely affect industrial productivity in the short term and service productivity in the long term. Asymmetric effects are evident, with foreign workers significantly diminishing industrial productivity in the short run and workers with low educational attainment negatively impacting long-term agricultural productivity. Moving forward, Malaysia should prioritize transitioning its labor market toward higher-skilled employment to boost sectoral productivity. Policymakers ought to emphasize enhancing the access and quality of secondary and tertiary education, aligning educational outcomes with industry demands. The findings stress the urgency of reducing reliance on low-skilled foreign labor by fostering workforce upskilling, accelerating the adoption of Industry 4.0 technologies, and promoting innovation. These strategies are critical for Malaysia to achieve its aspirations of becoming a high-income nation while ensuring sustainable and inclusive economic growth.