This study applies stochastic frontier analysis to data on Malaysian hotels from 2002 to 2004 to decompose total factor productivity growth into technical progress and technical efficiency change. The study also identifies the factors that determine each total factor productivity component. For this time period, Malaysian hotels operated at an average efficiency of 41 percent; and average technical efficiency change, technical progress, and total factor productivity growth were -.057, .127, and .070, respectively. Thus, total factor productivity was driven mainly by technical progress and was plagued by a deteriorating technical efficiency. The most important determinants of technical efficiency are training, employing university graduates, foreign ownership, and outsourcing; while those for technical progress are capital stock and employees with university degrees.
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