ARTICLES Total Factor Productivity Growth in Foreign and Domestic Firms in Malaysian Manufacturing JAYANT MENON In this article, we estimate total factor productivity growth (TFPG) in foreign and domestic firms in 53 Malaysian 5-digit ISIC manufacturing industries for the period 1988 to 1992. We find that most of the growth in real manufacturing output over this period is due to input growth, rather than productivity growth. This is true for both domestic and foreign firms. Where there is non-negligible amounts of TFPG growth, it is concentrated in final goods industries such as household consumer and electrical goods. These are industries that manufacture, and not just assemble. Future productivity growth, if there is to be any, is likely to come from the expansion of these industries, and not from continued growth in assembly activities in the semiconductors and electronic parts industries. The evidence on TFPG presented here suggests that, as of 1992 at least, this shift from assembling to manufacturing had not occurred to any significant extent. I. INTRODUCTION The past two decades have witnessed a shift in trade and industry policy in developing countries (DCs) away from import substitution and towards export-orientation. As part of this policy shift, an increasing number of DCs have become more receptive to foreign direct investment (FDI); the age-old uncertainty about the net benefits of FDI is beginning to wane, or is it? While once satisfied with the employment that multina- tional enterprises generated in these capital-starved but labor-abundant economies, many governments and policy-makers are looking for MNEs to provide other benefits to the local economy. High on this list of "other benefits" is technological and productivity spillovers. Jayant Menon * SeniorResearchFellow, Centreof PolicyStudiesand the IMPACT Project,MonashUniversity, Clayton,Victo- ria, 3168 Australia; Tel: 61 3 9905 5421, Fax: 61 3 9905 2426;e-mail:Jayant.Menon@buseco.monash.edu.au. Journal of Asian Economics, Vol. 9, No. 2, 1998, pp. 251-280. Copyright © 1998 by JAI Press Inc. ISSN: 1049-0078 All rightsof reproductionin any formreserved. 251