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This paper examines the relationship between research and development (R&D), human capital and performance of the manufacturing sector in Malaysia, spanning the period 2000-2010. It takes into account ownership structure to highlight differences in the roles of R&D and human capital in boosting performance. The results show the significant role of R&D and skilled labour in increasing value-added across subsectors of manufacturing, for both local and foreign firms. Unskilled labour contributes significantly to local firms compared with foreign ones. However, the magnitude of the impact of R&D on performance is found to be much smaller; with significant impacts for both local and foreign firms. This suggests that the extent of R&D has not been fully realised in the manufacturing sector, even with the higher averages in R&D expenditure by foreign firms. Therefore, the types of R&D for performance are important for policymakers to address, in that, the focus should move beyond the narrow view of R&D (namely the size of R&D expenditure).
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