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A Study of the Relationship between Economic Growth and Poverty in Malaysia, 1970-2002

Elise LOOI KAY YEE student laureate

°1978 Malaysia
Master’s in Economy, University of Malaya, Kuala Lumpur, Malaysia, 2004

A Study of the Relationship between Economic Growth and Poverty in Malaysia, 1970-2002

Malaysia’s record of development in the last thirty years has been impressive. The degree of poverty has dropped sharply. In 1970, 45% of the population lived below the poverty line. In 2002 the number of poor had fallen to 5% of the population, a result achieved only with difficulty in many developed countries. The author demonstrates that the most important factor in Malaysia’s success in combating poverty is the significant increase in economic growth. Malaysia has indeed experienced a long period of continuous economic improvement, with an average annual economic growth rate of 7.9%. Although this average hides periods of higher and – in two years – even negative growth, this rate is still sharply above the average for developing countries. As a result, Malaysia’s status is no longer that of a low-income country. According to the author it is chiefly the rise in employment of semi-skilled and unskilled workers in the industrial sector and less the improvement in the agricultural sector that is principally responsible for the fall in the number of poor. However, in Malaysia the decrease in the number of those living below the poverty line is combined with a high degree of inequality. Although this inequality is much greater than in developed countries, certainly in Europe, there has been, none the less, a perceptible drop. In comparison with the effect of the country’s economic growth, this fall is of little relevance in explaining the decrease in poverty.
However, it is not only economic growth that has improved the plight of the poor. The combination of economic growth with a very deliberate increase of access to improved health care and education has positively benefited those living in poverty. The indirect effects of better education and health care, funded by greater economic growth, have certainly been significant in decreasing poverty.
With this study the author confirms a very classic proposition of economic development science: growth is good for the poor. None the less, this proposition has led to much controversy. Indeed, the ‘fetishism’ of economic growth has always been a source of criticism. Combating inequality and a more direct strategy for improving the lot of the poor (for example, basic needs strategy, social funds and social safety nets) would be more effective. With this excellently empirically-based study Ms Looi has proved that, at least as regards Malaysia, the classic view, that growth is good for the poor, is valid.

report by Prof. Dr. S. Marysse, Institute of Development Policy and Management, Universiteit Antwerpen, Belgium