| Summary: | Purpose – The article has two main objectives. Firstly, it analyses technical efficiency, technological change, and total factor productivity (TFP) growth in small and medium industries (SMEs) in Malaysia. Secondly, it examines to
what extent technological change influences SMEs output growth. Design/Methodology/Approach – The analysis was based on the Manufacturing Industrial Survey data of 1985-2003 collected by the Department of Statistics Malaysia. SMEs are defined as an industry with less than 200 full-time workers. The study covers 10 SMEs sub-industries at 3 digits of the Manufacturing Standard Industrial Classifi cation (MSIC). In achieving the first objective, the study used Data Envelopment Analysis (DEA). The value of technological change derived from DEA was then used as the dependent variable in the production function to achieve the second objective. Findings – The study showed that TFP growth for the overall SMEs is negative due to negative change of both technical change and technological change.
However, analysis at the sub-industry level showed positive TFP growth for food and beverages, textiles, and plastic products, which was due to positive growth of their technical change. Technological change has positive impact on six SMEs sub-industries, i.e. food and beverages, textiles, wood-based products, plastic products, electrical electronics, and transport equipments. Originality/Value – This article introduces a new measurement for technological change from a DEA approach to be incorporated in the production function. Paper type – Research Paper.
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