Income Inequality and Ethnic Cleavages in Malaysia: Evidence from Distributional National Accounts (1984-2014)

In this paper, we document the evolution of income inequality in Malaysia, not only at the national level (for the period of 1984-2014) but also by ethnic group (for the period of 2002-2014). We combine information obtained from national accounts, household surveys, fiscal data, and demographic statistics. To our knowledge this is the first attempt to produce inequality measurements of Malaysia, which are fully consistent with the national accounts. Our research shows that despite Malaysia's exceptional economic growth rate, its growth has been inclusive. For the period of 2002 – 2014, the real income growth for the bottom 50% is the highest (5.2%), followed by the middle 40% (4.1%), the top 10% (2.7%) and then the top 1% (1.6%). However, while average growth rates are positive across all ethnic groups (Bumiputera 4.9%, Indians 4.8%, and Chinese 2.7%), the highest growth of real income per adult accrued to the Bumiputera in the top 1% (at 8.3%), which sharply contrasts the much lower growth rate of the Indians (at 3.4%) and negative income growth rates of the Chinese (at -0.6%). Despite the negative growth rate, the Chinese still account for the lion's share in the top 1%. In 2014, 60% of the adults in the top 1% income group are Chinese, while 33% Bumiputera, and 6% Indians (compared to 2002, in which the top 1% consists of 72% Chinese, 24% Bumiputera, and 3% Indians). We conclude that in this period, Malaysia's growth features an inclusive redistribution between income classes, but with a twist between racial groups.