|Agriculture|57,504.80|-4.2|765.85|
|---|---|---|---|
|Manufacturing|112,029.02*|-1.8|-653.29|
|Construction|41,013.66|-0.2|77.57|
|Trade|60,340.16|3.7|-594.72|
|Transport|128,421.10*|1.1|576.89|
|Business|144,599.13*|-2.5|-1,738.55|
|Other|57,656.80|3.7|-697.14|
|_Aggregate_|_75,960.34_|_0.0_|_-2,263.38_|

Source: Authors’ calculations based on data from DOSM Note: Asterisks represent values that are larger than the aggregate output per worker for the period.

Similar to the findings of the aggregate decomposition, the sectoral decomposition’s findings for Malaysia are also broadly consistent with the patterns of structural transformation that have been documented for other countries. For example, Merotto (2020) finds that improvements in within-sector labor productivity in the services sector are generally the main drivers of growth in output per capita in upper-middle income countries with above average per capita income growth, followed by within-sector labor productivity improvements in the manufacturing sector.

# **4.3. Dynamic Reallocation and Economic Growth**

Table 14 uses the canonical method introduced in Section 2.1 to decompose the growth of labor productivity into within-sector effects, static reallocation and dynamic reallocation for the period from 1990 to 2018 as well as three sub-periods. The table shows that the contribution of dynamic reallocation to labor productivity has been substantially higher than the contribution of static reallocation. This can largely be attributed to the substantial contribution of dynamic reallocation to productivity growth in the sub-period 1990 to 1997. During this sub-period, dynamic reallocation contributed 5.5 percent of overall labor productivity growth. In contrast, dynamic reallocation had a negative contribution of 3.9 percent of growth in overall output per worker for the sub-period 1997 to 2007, and a contribution of 0.9 percent for the sub-period 2007 to 2018.

**Table 14: Contribution of components of changes in labor productivity growth, 1990-2018**

|||**Share of contrib**<br>|**ution from (%)**<br>||
|---|---|---|---|---|
||**1990-1997**|**1997-2007**|**2007-2018**|1990-2018|
|Within-sector effects|92.2|102.3|97.3|_94.1_|
|Static reallocation|2.3|1.5|1.8|_0.7_|
|Dynamic reallocation|5.5|-3.9|0.9|_5.2_|
|_Total contribution_|_100.0_|_100.0_|_100.0_|_100.0_|

Source: Authors’ calculations based on data from DOSM A more detailed sectoral decomposition based on the canonical method shows that the negative contribution of dynamic reallocation to labor productivity growth for the sub-period from 1997 to 2007 can be attributed to the movement of labor into the manufacturing sector, which as discussed above started to experience relatively lower levels of productivity growth in the early 2000s (see Figure 18). In fact, both the static and the dynamic reallocation components of the manufacturing sector contributed negatively to labor productivity growth during the sub-period from 1997 to 2007. In contrast, increasing employment in the services sector, particularly the trade and business services sector, led to positive contributions of labor reallocation to productivity growth during the same sub-period. In the following sub-period from 2007 to 2018, the same patterns continued to hold for the manufacturing sector. At the same time, the fall in the employment share of 23