Industrialization has long been considered the key route by which economies can sustained long-term economic growth and standard of living. Industrialization involves the move from the traditional agriculture-based economy into manufacturing-based economy. The manufacturing sector has been considered as a technologically dynamic sector which has the ability to attain greater levels of capital accumulation, economies of scale and technological progress compared with the agriculture sector. However, deindustrialization occurs when the focal of economic development shifts from the manufacturing sector to the services sector, suggesting that consumer demand has shifted away from manufacturing towards services. Deindustrialization has been considered an inevitable consequence of the progress of economic development, whereby as income per capita grows over time, the employment share of the services sector starts to grow at the expense of the manufacturing sector, since productivity gains allow the manufacturing activities to function with fewer employees.
Nevertheless, since the year 2000, Malaysia experienced premature deindustrialization as (a) Malaysia’s share of manufacturing GDP in total GDP reaches its peak at the per capita income which less than the per capita income experienced by the developed nations, and (b) the decrease in employment share less than the decrease in GDP share. In view of this situation, the Asian Productivity Organization (APO) conduct research on “Premature Deindustrialization and Productivity Performance” of several APO member countries, including Malaysia. The study hope to (a) study the risk of premature deindustrialization among APO member economies; (2) estimate the impact of deindustrialization on long-term productivity performance; and (3) generate implications for industry and productivity policies. EU-ERA and THE FUTURE has been tasked to examine the above issues in the context of Malaysia.