Sharing the pie : revisting Malaysian income distribution policies

Abstract

For the past five decades, the Malaysian economy grew at a rapid rate resulting in a considerable structural transformation of the economy. While growth has been good for the poor, the relationship between growth and income distribution fluctuates with the different policy interventions. Moreover, decomposition of income inequality into "between group" and "within group" inequalities indicates that generally the "within group" inequalities far exceed the "between group" inequalities. For example, inequality between ethnic groups is only a small fraction of total inequality and even this has been declining over the years. While the policies implemented seem to have been successful in reducing the inter-ethnic gap, some of these policies might have been causing the "within group" inequality to increase. Similarly, "within group" inequalities by urban and rural areas are much higher than "between group" inequality, which implies that potentially larger gains in terms of a reduction in overall inequality will be achieved if efforts are focused on reducing inequality within both urban and rural areas. As such, it is time now to reconceptualise the strategies of attaining ethnic income parity as well as reducing the urban -rural income gap.