Unless otherwise specified, the mining sector is excluded from the subsequent analysis of patterns and sources of economic growth. More specifically, it is excluded from all calculations of labor productivity in Section 3.3 and the decomposition of aggregate and sectoral economic growth in Section 4. This is because Malaysia’s mining sector is primarily composed of the oil and gas sector. Thus, it is a very capital-intensive sector with levels of output per worker that far exceed those of other sectors. In 2018, output per worker for the mining sector was almost six times of that for the whole economy. Moreover, output the of the mining sector is highly cyclical as it reacts to global fluctuations in commodity prices. As inputs into the sector are much less cyclical, its labor productivity appears to fluctuate widely – but this largely reflects the global fluctuations in commodity prices, rather than meaningful changes in production processes.

# **3. Patterns of Economic Growth**

# **3.1. Output Growth**

As discussed above, Shapley decompositions can be used to decompose growth in output per capita into growth associated with changes in employment rates, growth associated with changes in the working age population as a share of the total population, and growth associated with changes in output per worker. Before embarking on this formal decomposition exercise, this section describes patterns associated with the variables underlying the decomposition: output, overall and working age population, employment, and output per worker. The section starts with an analysis how output per capita has grown over time and varied across sectors.

In the three decades between 1987 and 2018, Malaysia’s output increased by 443.5 percent or by more than five times, from RM 247,552 million to RM 1,345,531 million (see Table 3). Output growth was highest in the business services, trade services, and transport services sectors, with output in all three sectors growing more than ten-fold. The manufacturing sector also grew very strongly, with output expanding more than eight times in the same period. Aside from the highly cyclical mining sector, the agriculture sector experienced the lowest growth in the period, with agricultural output increasing by “only” 79 percent.

**Table 3: Output and share of output by sector, 1987-2018**

||**Out**|**put (constant**|**2015 million M**|**YR)**|**Sh**|**are of outpu**|**t by sector (**|**%)**|
|---|---|---|---|---|---|---|---|---|
||**1987**|**1997**|**2007**|**2018**|**1987**|**1997**|**2007**|**2018**|
|Agriculture|55,577.35|61,844.18|80,504.44|99,470.00|22.5|11.4|9.9|7.4|
|Mining|62,204.54|86,940.49|106,519.60|103,135.00|25.1|16.0|13.1|7.7|
|Manufacturing|34,708.84|127,068.34|201,910.72|304,847.00|14.0|23.4|24.8|22.7|
|Construction|9,664.19|32,655.21|27,104.38|66,218.00|3.9|6.0|3.3|4.9|
|Trade|23,399.82|79,119.31|130,862.42|272,258.00|9.5|14.6|16.1|20.2|
|Transport|12,755.54|35,755.24|62,113.34|129,312.00|5.2|6.6|7.6|9.6|
|Business|11,846.30|45,653.54|83,219.30|152,796.00|4.8|8.4|10.2|11.4|
|Other|37,395.41|72,969.55|120,809.51|217,495.00|15.1|13.5|14.9|16.2|
|_Aggregate_|_247,551.99_|_542,005.85_|_813,043.69_|_1,345,531.00_|_100.0_|_100.0_|_100.0_|_100.0_|

Source: Authors’ calculations based on data from DOSM It is evident from Table 3 as well as Figure 2 that in the three decades from 1978 to 2018 the structure of Malaysia’s economy changed dramatically. During this time period, the country was transformed from an economy still largely based on agriculture to a services-driven economy. From 1987 to 2018, the share of agriculture in aggregate output fell from 22.5 percent to 7.4 percent. In the same period, the share of manufacturing increased from 14 percent to 22.7 percent while share of trade services more than doubled, from 9