Food Industry Malaysia

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Vol. 2, No. 3

International Business Research

An ARDL Approach in Food and Beverages Industry Growth Process in Malaysia Rohana Kamaruddin Department of Economics, Faculty of Business Management, Universiti Teknologi Mara, Malaysia Tel: 60-3-5544-4935 E-mail: rohana070@salam.uitm.edu.my / rohana77@hotmail.com Kamaruzaman Jusoff (Corresponding author) Faculty of Forestry, Universiti Putra Malaysia, 43400 Serdang, Selangor. Malaysia. Tel: 60-3-8946-7176 E-mail: kjusoff@yahoo.com

The research is financed by Universiti Teknologi MARA (Sponsoring information) Abstract The study examines the process of growth in the value added of food and beverages industry in Malaysia. The per capita income, population, skill and export are likely to exhibit long run relationship with the value added growth of this industry. Using the newly developed autoregressive distributed lag (ARDL) by Pesaran et al, (1995,1997, 1999 and 2000), a long run steady state equilibrium relationship between the independent variables and the growth performances of food industries is detected. Specifically this study has shown that in addition to the size of the population and percapita income, export are closely related to the growth of the value added of food and beverages industry. This empirical result would help Malaysia aspiration of becoming a hub for the halal food industry a reality. Keywords: Value added, Error correction model, Halal food, Food and beverages, Growth 1. Introduction The manufacturing sector is the fastest growing sector and the dominant force in Malaysia’s growth experience. The structural transformation in the Malaysian economy has turned the country from an exporter of primary commodities into an exporter of high value added manufactured products. During the early process of development in the Malaysian economy, there occurred a dramatic decline of the proportion of GDP generated by the primary sector. It was counterbalanced by a dramatic increase in the share of industrial sector and by a modest increase in the share of the service sector. The agriculture sector’s share in GDP declined from 22.3 percent in 1980 to 8.7 percent in 2002, the contribution of the industrial sector grew from 38.5 percent in 1980 to 44.5 percent in 2002 (Table 1). Based on the theory of structural change by Fisher and Clark (1957), Malaysia was categorized as a middle-income country concerned with industrial production through manufacturing. Unfortunately, even though the Malaysian manufacturing sector had experienced rapid export demand, this surge in demand had not been uniform across all industries. The rapid export growth from a set of industries did not imply that these industries were also displaying high demand growth in world markets. The annual growth of the manufacturing industry did not perform as well as its share to GDP. During the 1982 to 2002, the annual growth of manufacturing sector decreased sharply (Table 2). This condition was reflected in the Malaysian phase of industrialization, where the government policy towards industrialization kept changing over a period of three decades. The policy of the 1960s was the import substitution policy, followed by the export orientation in the 1970s, and in the 1980s it shifted back to import substitution policy. This indicated that growth in some industries and stagnation or decline in the manufacturing sector was not well balanced in terms of its contribution to the overall economy. The food and beverages industry are one of the most important sector in the manufacturing industry. Under the Malaysian Standard Industrial Classification (MSIC) 2000, the food and beverages industry are classified under Division 15, and in the year 2000 these sector which constitute of sector 151, sector 152, sector 153, sector 154 and

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International Business Research

July, 2009

sector 155 valued at RM8,142,057 Million. Detail information regarding the classification is given in the Table 3 and...
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