An economic analysis of agricultural production function in the Muda Agricultural Development Area in Kedah, Malaysia

Paddy sub-sector is an important agricultural sector and it has become the main contributor of rice for Malaysia. Rice is Malaysian's staple food and the main source of calories. The development of paddy sub-sector manages to guarantee the sustainability of food security for Malaysians. The government has undertaken various measures to ensure the productivity of this sector continues to grow. This is to accommodate the demands of society, as well as to reduce imported rice. This study has selected four paddy production regions under Muda Agricultural Development Authority (MADA) as the research locations. This is because MADA is the major rice production in Malaysia. The study is undertaken to investigate factors that influence Malaysia paddy sub-sector, and also to
examine the growth of total factor productivity (TFP). In addition, this research also
investigates the capital-labow and young-old famers' elasticity of substitution. The study
employed time series data from the main seasons of 1996 (1996H1) to 2011 (2011H1). Autoregressive distributed lag (ARDL) approach was employed to determine the longrun relationship between responding variable and regressor. For a model that does not indicate any long-run relationship, the researcher may employ the vector autoregression
(VAR) approach. The total factor productivity (TFP) is employed to investigate paddy productivity growth. Present research employs constant elasticity of substitution (CES) production function to determine capital-labour and young-old farmers' elasticity of substitution. Empirical result indicates that each MADA production region has different factors that influence the paddy production. For both main and off seasons the TFP
growth is fluctuating below 5 per cent. Empirical estimation also indicates that an average production in off-season has a negative productivity growth (declining productivity levels). The elasticity of substitution between the capital and labour is found inelastic. Meanwhile, the elasticity of substitutions of the young and old farmers is said unitary. From the above findings, this research strongly suggests that the increase in productivity growth is important for paddy sub-sector in Malaysia. The study makes
several practical inferences in designing suitable macroeconomic policy and undertaking measures to promote high productivity growth. A few policies are recommended such as to increase research and development (R&D) fund allocation, improve the efficiency of land management and encourage more young people to join paddy sub-sector.