Ethnic Inequality and Poverty in Malaysia Since 1969

Abstract

Ethnic riots broke out in Malaysia in 1969, prompting a national effort at affirmative action favoring the poorer (majority) of “Bumiputera” (mainly Malays). Since then, Malaysia’s official poverty measures indicate one of the fastest long-term rates of poverty reduction in the world, due to both economic growth and falling inequality. Did ethnic inequality fall since 1969 and was that a key factor in the country’s success in reducing poverty and in managing inequality? New measures in this paper indicate a substantial decline in relative ethnic inequality. This brought down national relative inequality, though not enough to prevent rising absolute inequality, given the initial disparities. A new analytic decomposition of the rate of poverty reduction reveals that ethnic redistribution helped reduce poverty, although it was not as important as the overall rate of growth in household incomes. Despite past progress in reducing ethnic inequality, the responsiveness of the national poverty rate to ethnic redistribution remains high even today.