The Effect of Dr. Mahathir on the Malaysian Economy

Dr. Mahathir is often credited with Malaysia’s economic success post-1980. However, it is well known that the Mahathir regime centralized power in the Office of the Prime Minister and extended state capacity, creating a system of government susceptible to corruption. This corruption eventually made global headlines in 2015 with the 1MDB $5 billion dollar scandal. Thus, while Malaysia did experience growth that coincided with the reign of Dr. Mahathir, it is possible that his regime limited this positive change. We use the Synthetic Control Method to study the impact of Dr. Mahathir on the Malaysian economy. We compare economic outcomes in Malaysia under Dr. Mahathir’s reign with outcomes in counterfactual Malaysia, a Synthetic Control constructed from a set of similar countries that did not experience such change. We find that while Malaysia did experience growth throughout Dr. Mahathir’s leadership, GDP per-capita was far below (approximately $4,000 per-capita below 9-years following the treatment) its potential as measured by Synthetic Malaysia. This study provides some evidence of a negative economic effect from power centralization and, perhaps, from enhanced state capacity.