Marked shift in relative demand towards lower skilled

marked shift in relative demand towards lower-skilled groups and an increase in wage equality in those
industries most open to increased competition in international markets.
Turning to the impact of TFP, overall, productivity gains associated with technical efficiency and/or
technical change have also favoured less-skilled workers, indicating a shift in relative demand towards
those with no formal qualifications and with lower-level educational qualifications. Mahadevan (2002)
notes that during the 1990s the benefits of technological change associated with major increases in
foreign direct investment were limited due to the fact that Malaysian manufacturing was focused on
low-skilled assembly-level activities. This mirrors Devadason ’ s (2002) finding that Malaysia ’ s trade
Table 5. Trade liberalisation and wage inequality – instrumental variable estimates
1 2 3
Constant 6.488 (0.0348)* 6.446 (0.0396)*
Educational qualifications
Tertiary 1.112 (0.0124)* 1.467 (0.042)*
Intermediate 0.372 (0.0057)* 0.507 (0.0289)*
Low 0.189 (0.0068)* 0.324 (0.0307)*
Na-qual – 0.381 (0.0349)* – 0.219 (0.039)*
Male 0.335 (0.0055)* 0.335 (0.0057)*
Married 0.104 (0.0058)* 0.104 (0.0058)*
Age 0.094 (0.0015)* 0.094 (0.0015)*
Age squared – 0.001 (0.00002)* – 0.001 (0.00002)*
Trade
Sector import penetration 0.158 (0.0225)* 0.264 (0.0356)*
Sector export penetration – 0.222 (0.0217)* – 0.330 (0.0389)*
TFP 0.103 (0.025)* 0.135 (0.0327)*
Interaction effects
Tertiary*import – 0.229 (0.0594)* 0.035 (0.053)
Intermediate*import – 0.0170 (0.0347)* 0.093 (0.020)*
Low*import – 0.155 (0.0385)* 0.108 (0.027)*
NA/import – 0.441 (0.062)* – 0.178 (0.055)*
Tertiary*export – 0.012 (0.061) – 0.342 (0.052)*
Intermediate*export 0.140 (0.038)* – 0.190 (0.219)*
Low*export 0.191 (0.0425)* – 0.139 (0.0289)*
NA qual*export – 0.006 (0.067) – 0.336 (0.061)*
Tertiary*TFP – 0.204 (0.031)* – 0.069 (0.019)*
Intermediate*TFP – 0.099 (0.025)* 0.0354 (0.012)*
Low*TFP – 0.118 (0.026)* 0.0163 (0.0135)
NA qual * TFP – 0.049 (0.028)** 0.086 (0.0182)*
R-squared 0.365 0.366
N 69770 69770 69770
Notes : (1) The equations are estimated using lag values of export, import and technological change as instruments.
(2) The equations include industry-specific and year fixed effects. (3) Standard errors are shown in parentheses –
* denotes significance at 1 per cent; ** at 10 per cent. (4) The figures shown in column 3 are the joint effects of
export, import, and technology, on the one hand, and the educational qualification variables, on the other.
1128 R. McNabb & R. Said
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sector is narrowly based and focused on relatively labour-intensive component production and
assembly, and which has involved limited improvement in quality, thus hindering skill upgrading.
Finally, we consider the impact of trade openness on wage inequality excluding TFP. The results of this
exercise are shown in Table 6. A comparison of the parameter estimates shows that excluding TFP from
the estimated equations makes little quantitative difference to any of the estimates of the original model.
6. Conclusions
The Malaysian economy has undergone a major restructuring since the mid-1980s as successive
governments have sought strong economic growth through a very open trade policy regime and in a
climate of more open and competitive world markets. In many respects, the policies pursued have been
successful in producing strong growth and greater wage equality. However, the results suggest that this
conclusion requires qualification in that the benefits of trade liberalisation have impacted upon the