Jurnal Ekonomi Malaysia 52(1) 2018 89 - 103 http://dx.doi.org/10.17576/JEM-2018-5201-8 Trade Linkages and Skill Demand: Empirical Evidence for the Malaysian Electrical and Electronics Industries (Hubungan Antarabangsa dan Permintaan Buruh Berkemahiran: Bukti Empirik bagi Industri Elektrik dan Elektronik Malaysia) Azmafazilah Jauhari Noor Aini Khalifah Universiti Kebangsaan Malaysia ABSTRACT This article empirically investigates whether trade linkages have any contribution to skill upgrading in the Malaysian electrical and electronics (E&E) frms by using establishment level data. The richness of data provided by Department of Statistics Malaysia (DOSM) enable us to explore the direct impact of each aspect of trade linkages, including exports of goods, imported inputs (outsourcing), and foreign ownership (FDI). More crucially, this research analyse the effects of the modern trade pattern, i.e. vertical trade which would best capture the current trend in the Malaysian E&E sector – high overlap in exports and imported inputs. The skill demand is analysed using dynamic skill share demand equation and GMM (generalised method of moments) estimator addresses both the endogeneity and frm fxed effect. Contrary to previous studies, results suggest that export and outsourcing do not signifcantly contribute to skill upgrading in Malaysian E&E establishments within the period under study. Plus, vertical trade and foreign share have signifcant negative impact on relative demand for skilled workers. These fndings provide evidence that vertical trade as well as the presence of multinational corporations (MNCs) are associated with skill downgrading in Malaysian E&E sector. Empirical evidence does not uphold the conventional wisdom of the benefcial effects of trade especially ultra-vertical or export processing trade on skill upgrading. Keywords: Vertical trade; empirical studies of trade and labour demand ABSTRAK Artikel ini mengkaji secara empirikal adakah hubungan antarabangsa menyumbang kepada peningkatan buruh berkemahiran bagi frma elektrik dan elektronik (E&E) Malaysia dengan menggunakan data peringkat pertubuhan. Kekayaan data daripada Jabatan Perangkaan Malaysia (DOSM) membolehkan pengkaji menganalisis kesan langsung setiap aspek hubungan antarabangsa, termasuklah eksport barangan, input yang diimport (penyumberan ke luar) dan pemilikan asing (FDI). Apa yang lebih penting, ini membolehkan pengkaji menganalisis implikasi bentuk perdagangan moden, iaitu perdagangan menegak yang mana paling sesuai untuk menggambarkan trend terkini sektor E&E Malaysia – iaitu pertindihan yang tinggi dalam eksport dan input yang diimport. Permintaan buruh berkemahiran ini dianalisis menggunakan persamaan dinamik dan kaedah penganggaran GMM digunakan untuk menangani isu endogeniti dan kesan tetap frma. Berbeza dengan kajian terdahulu, keputusan kajian ini merumuskan eksport dan penyumberan ke luar tidak signifkan meningkatkan buruh berkemahiran bagi pertubuhan E&E Malaysia dalam tempoh kajian ini. Tambahan lagi, perdagangan menegak dan pemilikan asing secara signifkan memberi kesan negatif terhadap permintaan relatif pekerja mahir. Penemuan ini memberi bukti bahawa perdagangan menegak dan kehadiran pertubuhan asing (MNC) sebenarnya boleh dikaitkan dengan berlakunya penurunan kemahiran dalam sektor E&E Malaysia. Bukti empirikal kajian ini tidak menyokong idea konvensional yang menyokong faedah perdagangan antarabangsa, terutamanya kesan perdagangan ultra-menegak atau pemprosesan eksport terhadap peningkatan buruh berkemahiran. Kata kunci: Perdagangan menegak; kajian empirikal perdagangan dan permintaan buruh INTRODUCTION This study aims to document the relevance of trade linkages in shaping the landscape of Malaysian manufacturing, by focusing on its influence on employment, particularly skilled labour demand. We empirically test the signifcance of every aspect of trade, particularly vertical trade 1 , international outsourcing (importing inputs), and export of goods as well as foreign ownership (FDI) as underlying forces for the changes in skill demand for the Malaysian electrical and electronics (E&E) industries within the period from 2000 to 2005. This study is crucial, particularly for policy implications regarding the association of Malaysian trade and the composition of labour demand in the manufacturing sector.