The Microeconomics of Changing Income Distribution in Malaysia
By Gary Fields, Sergei Soares (02/02, En, Es)
The Malaysian income distribution has exhibited major changes over the twenty-four years from 1973 to 1997 for which data are availiable. Real average per capita income increased by 2.5 times, the absolute poverty rate fell from over fifty percent of the population to under 8 percent, income inequality decreased, and ethnic disparities narrowed (World Bank, n.d.). This record has cased malaysia to be cited as a successful case of growth with redistribution (Ahuja et al, 1997).
Within this overall period, however, both the growth and the distribution experience were uneven. Economic growth was much slower in the 1984-89 period (just a 1.6% average annual increase in real GDP per capita). Also, income inequality followed two distinct phases. The first phase, from 1973 to 1989, was marked by falling income inequality. This was reversed, however, from 1989 to 1997, during which time income inequality rose. But because the changes in inequality in both periods were modest relative to the magnitude of economic growth, poverty in Malaysia fell continuously, albeit at a slower rate during the slow growth years of the 1980s.
This study uses data from Malaysia's Household Income and Expenditure Surveys to quantify the importance of different factors in accounting for the changes in Malaysia's income distribution between 1984 and 1989 ("Period 1") and between 1989 and 1997 ("Period 2").
Last updated: 04/26/07
