The Political Economy of Poverty Reduction in Malaysia

This article critically examines regional differences in poverty reduction in Malaysia with a focus on political economy factors. More specifically, we focus on the East–West regional divide in income poverty, between four historically poorer the West Malaysia and two states of Eastern Malaysia–Sabah and Sarawak during 1970–2019. Between 1970 and 1990, Malaysia implemented the New Economic Policy (NEP), arguably the longest and most ambitious race-based affirmative action programme in the world. In this context, we also assess whether and how its affirmative action policies succeeded in closing regional gaps. During the NEP, Sarawak saw greater and earlier reductions in income poverty and inequality than the resource-rich states of Sabah and Terengganu, where poverty largely persisted. We argue that politics played a key role in explaining Sabah’s different trajectory vis-à-vis Sarawak, Perlis, Kedah, Kelantan and Terengganu. The ethnicity-targeted policies of the NEP meant the Malays and Muslims were given priority over all other groups. The faster decline in poverty in Sarawak coincided with Muslim control since 1970. On the other hand, when Sabah was under the non-Muslim rule, there was little progress on poverty alleviation. The situation reversed when Sabah fell under Muslim control. The key lesson is that politics do matter during the implementation phase of poverty alleviation programme in Malaysia.