ICT and Human Capital Role in Achieving Knowledge-Based Economy: Applications on Malaysia's Manufacturing

Abstract

Using Information and communication technology (ICT) in the activities of Malaysia's manufacturing sector contributes significantly to its productivity growth in general and total factor productivity (TFP) growth of the sector in particular. This study assumes that the use of ICT in the manufacturing sector is increasing from year to year in the form of a geometric progression due to the rapid innovations of ICT around the globe. Labour input was subdivided into skilled semi-skilled and unskilled, to measure the achievement of the knowledge-based economy (K-economy) through human capital involved in the sector. The results of this study show that the contribution of the ICT used in the sector was the highest one among the input terms. This means that achieving K-economy through ICT is faster than achieving it through the human capital and other traditional inputs. The impact of ICT on TFP contributions is significant and better than skilled labour as an indicator of knowledge workers (human capital) that showed a very low contribution of TFP. But the growth rate of TFP is lower compared with the growth rate of the ICT. As a result, the achievement of the K-economy is not in a geometric progression like that of the ICT development.