Perspiration versus inspiration: Lessons from a rapidly developing economy

The 'perspiration versus inspiration' debate is revisited by studying the Malaysian manufacturing sector. Estimating a stochastic production frontier model using a new panel data set of Malaysia's 26 three-digit manufacturing industries from 1970 to 2002, the study confirms previous findings that inspiration in the form of total factor productivity growth is lacking while perspiration in the form of factor accumulation is driving manufacturing output. But more importantly, the causal links between perspiration and inspiration, and how it is related to total factor productivity growth, technical efficiency and technological progress are discussed. This provides the basis to evaluate current policies and suggest how they can be made effective in sustaining growth in the Malaysian manufacturing sector.