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“Impact on poverty and income inequality in Malaysia’s economic
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AUTHORS Rabiul Islam, Ahmad Bashawir Abdul Ghani, Irwanshah Zainal Abidin, Jeya
Malar Rayaiappan
ARTICLE INFO
Rabiul Islam, Ahmad Bashawir Abdul Ghani, Irwanshah Zainal Abidin and
Jeya Malar Rayaiappan (2017). Impact on poverty and income inequality in
Malaysia’s economic growth.
Problems and Perspectives in Management
(open-access)
,
15
(1), 55-62. doi:10.21511/ppm.15(1).2017.05
DOI http://dx.doi.org/10.21511/ppm.15(1).2017.05
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Problems and Perspectives in Management, Volume 15, Issue 1, 2017
55
Rabiul Islam (Malaysia), Ahmad Bashawir Abdul Ghani (Malaysia), Irwanshah Zainal Abidin (Malaysia),
Jeya Malar Rayaiappan (Malaysia)
Impact on poverty and income inequality in Malaysia’s
economic growth
Abstract
Poverty and income inequality are extreme issues that still exist in Malaysia. Any rise in poverty and income inequality defi-
nitely affect economic growth. There are many great efforts taken by the government of Malaysia to eradicate poverty and to
reduce the gap of income inequality which occurs since 1970’s. The incidence of poverty and income inequality is higher in
rural areas compared to urban areas. This paper is mainly to study the level of poverty and income inequality in Malaysia
together with government intervention to develop Malaysia’s economic growth. The research is focused among the working
people at Ipoh, Perak. In this paper, questionnaire forms are being distributed to get information regarding the issue of pov-
erty and income inequality. It also looks into the strategies taken by the government of Malaysia to eradicate poverty and
income inequality. Few recommendations are given in terms of education policy, financial aid and assistance from govern-
ment and non-government organization (NGO) to upgrade the standard and quality of living among the poor and lower-
income group of people.
Keywords: poverty, income, inequality, economic growth.
JEL Classification: O1, O4.
Introduction
Malaysia is an Asian country with unique multiracial
peoples of different religions, cultures and languages.
The three largest ethnics in Malaysia are Malay, Chi-
nese and Indian. In Sabah and Sarawak, there are in-
digenous ethnic groups with their own unique culture
and heritage.The Federation of Malaysia comprises 13
states in Peninsular Malaysia, and Sabah, Sarawak in
east Malaysia. There are also 3 federal territories
namely Kuala Lumpur, Putrajaya and Labuan.In the
aspect of economy, Malaysia is a developing country
with a highly open upper-middle income. Formerly,
Malaysia focuses on the primary sector which is from
the natural resources in agriculture and forestry. Later,
Malaysia moves on to the secondary sector which is
manufacturing and industry. This sector provides a
greater contribution and act as the backbone of its
economy. At this era, Malaysia emphasises on tertiary
sector which is the service sector.
People living in urban areas can have a good access to
their daily basic needs and facilities. The cities devel-
opment will definitely increase the demand of the peo-
ple and eventually this will bring to higher living cost.
In contrast, people living in rural area such as in Ke-
lantan, Sabah and Sarawak are poor and have low in-
Rabiul Islam, Ahmad Bashawir Abdul Ghani, Irwanshah Zainal
Abidin, Jeya Malar Rayaiappan, 2017.
Rabiul Islam, School of International Studies, College of Law, Govern-
ment, and International Studies, University Utara Malaysia, Malaysia.
Ahmad Bashawir Abdul Ghani, School of International Studies, College
of Law, Government, and International Studies, University Utara Ma-
laysia, Malaysia.
Irwanshah Zainal Abidin, School of Economics, Finance and Banking,
College of Business, University Utara Malaysia, Malaysia.
Jeya Malar Rayaiappan, School of Economics, Finance and Banking,
College of Business, University Utara Malaysia, Malaysia.
This is an Open Access article, distributed under the terms of the Creative
Commons Attribution-NonCommercial 4.0 International license, which
permits re-use, distribution, and reproduction, provided the materials aren’t
used for commercial purposes and the original work is properly cited.
come inequality. This is because agriculture is their
main source of income and employment. The chal-
lenges in producing sufficient food and agricultural
products to sustain their life will eventually end up
with urban population, (World Bank, 2015). This is
due to good services and infrastructures together with
job opportunities.
The greatest challenges faced by Malaysia are the
issue of poverty and income inequality. Since 1971
until 1990, government of Malaysia has launched
New Economic Policy (NEP) which aimed to pro-
mote growth of the country. Two major strategies of
this New Economic Policy (NEP) are to reduce and
eradicate absolute poverty and to restructure society
in order to correct economic imbalances. Yet, this
problem has no ending. This can be because of im-
balanced intra-ethnic income distribution and urban
poverty. According to Economic Planning Unit
(2015), poverty and income inequality still exists
with the highest level in few states mainly in Sabah
and federal territory of Labuan (3.9%), Kelantan
(0.9%), and Sarawak (0.9%) in 2014.
The incident of poverty can also be seen by ethnic
group and strata. During 1970, there was 49.3% of
poverty in Malaysia and reduced to 0.6% in 2014. In
2014, the Gini income coefficient of income inequality
was at 0.41%. This shows that high level of poverty
still exists in Malaysia and there is uneven income dis-
tribution (Economic Planning Unit, 2015).
In the aspect of ethnicity, Bumiputera as the largest
ethnic group in Malaysia portrays the highest level of
poverty compared to other races in Malaysia. In 1970,
there was 64.8% of poverty incidents among
Bumiputera and it declined to 0.8% in 2014. Besides
that, in 1970 there was 26.0% of poverty among Chi-
nese ethnic and it reduced to 0.1% in 2014. Moreover,
29.2% of poverty was recorded for Indians in 1970
and it reduced to 0.6% in 2014. As for others ethnic
Problems and Perspectives in Management, Volume 15, Issue 1, 2017
56
groups, 44.8% of poverty incidents in 1970 and it suc-
cessfully declined to 0.9% in 2014 (Economic Plan-
ning Unit, 2015).
Moreover, the urban poverty shows 0.3%, whereas
the rural poverty shows 1.6% in 2014 respectively
(Economic Planning Unit, 2015). This shows that
rural poverty is greater compared to urban poverty.
Finally, the government of Malaysia should take
greater measures to solve this issue as poverty and
income inequality serves as a major limitation of
economic development and growth. Incidence of
poverty by state and ethnic wise in percentage are
shown in Table 1 and Table 2.
Table 1. Incidence of poverty by state in percentage,
Malaysia, 1970 and 2014
State 1970 2014
Johor 45.7 0.0
Kedah 63.2 0.3
Kelantan 76.1 0.9
Melaka 44.9 0.1
Negeri Sembilan 44.8 0.4
Pahang 43.2 0.7
Pulau Pinang 43.7 0.3
Pera
k
48.6 0.7
Perlis 73.9 0.2
Selangor 29.2 0.2
Terengganu 68.9 0.6
Sabah & Federal Territory of Labuan n.a. 3.9
Sarawa
k
n.a. 0.9
Federal Territory of Kuala Lumpur n.a. 0.1
Federal Territory of Putrajaya n.a. 0.0
Source: Economic Planning Unit, 2015.
Table 2. Incidence of poverty by ethnic group in per-
centage, Malaysia, 1970 and 2014
Ethni
c
1970 2014
Bumiputera 64.8 0.8
Chinese 26.0 0.1
Indian 29.2 0.6
Others 44.8 0.9
Source: Economic Planning Unit, 2015.
Generally, poverty exists both in rural and urban
area. Poverty is defined as the state of being ex-
tremely poor. At this level, a person may face infe-
rior in quality or insufficient in amount. There are
two types of poverty which are absolute poverty and
relative poverty. Absolute poverty refers to lack of
basic necessities of households such as food, cloth-
ing and shelter. Absolute poverty does not concern
about the issues of broader quality of life and over-
all measure of inequality in the society (UNESCO,
2015). Therefore, the concept failed to identify the
social and cultural needs of individuals. Besides
that, relative poverty refers to poverty relative to the
standard of living household in a society. Three per-
spectives of relative poverty are income perspec-
tives, the basic needs perspectives and the capabili-
ties (empowerment) perspectives (UNESCO, 2015).
On the other hand, inequality refers to difference in
size, degree, circumstances and others. The effect of
inequality can be seen with the widening gap be-
tween the rich and the poor. Inequality can be meas-
ured in few perspectives such as income, consump-
tion, wealth, gender, employment, health variables
and others (Ogbeidi & Agu, 2015). According to
Kuznets (1955), income inequality rises in the early
phase of economic growth and slides in the later
stage of development.
This paper is done because the issue of poverty and
income inequality still exists although there are many
policies, programs, and plans already taken by the
government of Malaysia. There are many facilities
prepared by governments, yet people still live in pov-
erty. Therefore, through this research, the problems
faced by the population in Malaysia will be identified
to help them to get out of poverty and income ine-
quality. This research is also carried out to identify
poverty and income inequality among people from
both rural and urban areas. Other than that, this issue
also can be studied among different ethnicities and
states in Malaysia. It is believed that this research can
help government, non-governmental organization
(NGO) and other agencies to put in greater effort in
order to eradicate poverty and stabilize income ine-
quality for better Malaysian economy growth. Hope-
fully through this research, Malaysia can overcome
this problem in order to achieve its aim of being a
developed nation by 2020.
1. Literature review
1.1. Theory of the Vicious Circle of Poverty. Theory
of the Vicious Circle of Poverty is introduced by
Nurkse (1952). He proposed that a country is poor be-
cause it is poor. It implies that poverty exists in the
country which is not developed and financially unsta-
ble. According to this theory, a circular relationship
portrays both the demand and supply side of problem
of the capital formation of economically underdevel-
oped countries. The demand side is determined by the
incentives to invest. In contrast, the supply side is de-
termined by the capability and willingness to save. The
market dimension is determined by the productivity
level of an economy. Therefore to overcome the limi-
tations of being a low income and underdeveloped
economy, Nurkse (1952) insisted that the enlargement
of market is necessary so that a country can be elimi-
nated from the lower income stage and discontinue
being part of the vicious circle of poverty. It is be-
lieved that through this enlargement of market, devel-
opment and growth of an economy will take place.
According to Nurkse (1952), the belief of balanced
development should be stressed. This is where, in
order for a country to move forward, it must grow in
Problems and Perspectives in Management, Volume 15, Issue 1, 2017
57
the industrialization sector instead of depending on
basic production and export of raw materials. The
economic progress of a country is not automatic or
spontaneous. Thus, developing countries should need
the collaboration of both government and private sec-
tor in terms of savings and investments. A balanced
growth surely leads to greater economic progress
where surplus is greater than deficits. It is believed
that ‘The Theory of the Vicious Circle of Poverty’
succeeds in showing the level of poverty and back-
wardness of underdeveloped countries.
1.2. Highlights of relevant previous studies. Ac-
cording to Kuznet (1955), lower class people who are
originally from agricultural sector tend to migrate
from countryside to the cities due to the blooming of
industrialization which can increase the share of their
income. Thus, the shift increases the urban popula-
tion, where population in urban areas is greater com-
pared to urban areas and eventually raises the eco-
nomic growth with better and upgraded living condi-
tions. Besides that, the incidence of death rate is de-
clining due to poverty as the people are getting more
stable in their economic position, where a better life-
style is maintained.
According to Rank (2001), three major factors that
contribute to the incident of poverty are individual fac-
tors, cultural and neighborhood factors and structural
factors. Generally, individual factors refer to the atti-
tude of an individual, human capital and welfare par-
ticipation. Besides that, cultural and neighborhood fac-
tors are connected to the effect of neighborhood sur-
roundings that prone to poverty. Furthermore, the
structural factors are factors concerned to wide eco-
nomic and social structures related to poverty. Thus, it
is believed that government welfare policy can be af-
fected by various prospects of poverty.
Primarily, the incident of poverty is always related to
rural. Therefore many rural-based poverty eradication
and income redistribution strategies have been under-
taken, although it was in critical stage. Mainly, there
were two strategies that were implemented in order to
reduce this incidence of poverty, such as the plan for
better and more efficient services in education. Next, it
focuses in providing greater job opportunities in the
secondary sector (manufacturing, industry and others)
and tertiary sector which targets more towards ser-
vices. Thus, the role of public sector is essential to-
wards creating a better environment and providing
infrastructure to private sectors. This is because, pri-
vate sectors function as a major tools for the growth of
Malaysian economy (Ragayah, 2008).
According to Xavier & Ahmad (2011), as a devel-
oping country Malaysia is not capable to compete
with high value-added economies. The progress of
Malaysia is far behind in research and development
compared to its rivals. Although many economic
policies have been taken, yet income inequality still
gets broader. This can be due to wage growth that
has not been maintained together with the economy
growth in Malaysia.
According to Todaro (2012), two factors to overcome
the global issue of poverty are rate of economic
growth and the level of resources that committed to
poverty programs together with its quality. There are
five causes, where the focus of policies on poverty
reduction level does not bring towards slow growth
rate. First, spreading poverty level creates a condition,
where poor have no access to credit. This is where
poor people are financially unable to provide educa-
tion to their children and have another option by hav-
ing kids as an old-age financial security. Second, peo-
ple categorized from financially well to do in poor
countries are not well known for their determination in
savings or investments. Third, the lower level of in-
comes and livings of the poor can bring down the eco-
nomic productivity and stagnant growth of an econo-
my in terms of health, nutrition and education. Next,
an increment in the level of income can encourage an
increase in the demand of the poor in terms of basic
necessities such as food, clothing, shelter and others.
Fifth, the eradication of poverty can boost up stronger
economic growth which acts as a weapon and incen-
tives towards the process of development.
The major concern is that patterns of economic
growth and development would be unsustainable un-
less environment concerns are put seriously into con-
sideration (Ahmed et al. 2012). Good health is one of
the most important pre-requisite to human productivi-
ty which in turn leads to overall development of a
society. Health is understood as the indispensable
basis for defining a person’s sense of well-being and
is regarded as an important resource for a nation to
pursue national development goals. Good health rais-
es the productivity of the labour force and enhances
economic growth (Aldosari et al. 2014).There are
several factors that contribute to economic growth on
one hand an increase the EC on the other hand
(Abidin et al. 2015). Malaysia has 29.90 million pop-
ulations in the year 2014 (World Bank, 2015). Na-
tional Statistical Offices define rural population as
people living in rural areas. Rural population are the
difference between total population and urban popu-
lation. Besides that, National Statistical Offices de-
fine urban populations as people living in urban are-
as. In the year 2014, it was estimated around 7 771
529 rural population (26%) and 22 130 468 urban
population (74%) in Malaysia (World Bank, 2015).
The economic characteristics of high-poverty groups
together with imbalance income distributions mainly
consists of rural poverty, women and poverty, and eth-
nic minorities, indigenous populations and poverty. In
rural poverty the poor are discovered staying in dis-
proportionate level in rural areas, in which they are
predominantly focused to agriculture and primary ac-
tivities as their main source of income. The major
Problems and Perspectives in Management, Volume 15, Issue 1, 2017
58
component of poor people in the world is women.
Women are considered poor compared to others be-
cause of their lower ability and potential of earning
higher incomes compared to men. In addition,
women are more likely in getting low-productivity
jobs with minimum wages and less social security
benefits. As men are given more priority in job pro-
spects, this will definitely lead to income inequality
among men and women, where the economy growth
will be less productive. Furthermore, poverty and
income inequality among minor ethnics and indige-
nous populations are from those facing major econ-
omy, political and social discriminations. Their
chances of being malnourished, unemployed, in
poor health conditions and illiterate are higher com-
pared to others as they are in extreme level of pov-
erty and disparity of income. Other than that, one of
the main studies in developing countries is between
economic growth and income distributions because
growth seems to be contradicted with income distri-
butions and finally results in higher inequality and
failure in poverty elimination (Todaro, 2012). Ac-
cording to Elhadary & Samat (2012), the high num-
ber of urban poor is due to the process of urbaniza-
tion. Thus, people living in urban area are moderate-
ly better-off compared to those living in rural area.
Urbanization is an approach that will activate eco-
nomic growth, however it will cause huge gap be-
tween cities and different social group.
World Bank defines poverty as failure in income
“dollar-a-day”. In 1970s, Malaysia has developed the
poverty line in order to eradicate poverty. This pov-
erty line was applied for the evaluation of the mini-
mum consumption on moderate sized household de-
mands which includes food, shelter, clothing and oth-
ers. Therefore, if the income of households is below
the poverty line, then it is described as living in pov-
erty. In addition, households are categorized as living
in “hard-core” or extreme poverty if their incomes are
below half the poverty line (Hatta & Ali, 2013).
International Monetary Fund found that there is an
inverse relationship between income inequality and
economy growth of a developing country. Further-
more, income inequality can affect the economic
growth in the sense of inefficient public policies. The
higher gap between income inequalities can bring
higher social cost and expenditure. Eventually, there
will be imbalance in growth (Dabla-Norris, 2015).
1.3. Policies and programs. 1.3.1. New Economic
Policy (NEP). According to Jomo (2004), the Gov-
ernment of Malaysia has introduced the New Eco-
nomic Policy (NEP) in 1970. Two major objectives
in this New Economic Policy (NEP) are to eradicate
poverty regardless of race and to restructure the soci-
ety. This policy is a great effort taken by the govern-
ment in order to minimize the interethnic economic
disparities between Bumiputera, Chinese, Indians,
and other races as well. The three perspectives of this
NEP policy are poverty reduction, restructuring soci-
eties and wealth distribution.
Export-oriented industrialization and developmental
programs of rural and urban areas were encouraged in
the first strategy. Less fortune class people are highly
encouraged to enter the economic activities as a way to
develop and upgrade their living. The main strategies
are by in situ agriculture and land development for the
fast blooming of rural labor force with higher partici-
pation in secondary sectors (industrial and manufactur-
ing) and tertiary sectors (service). Besides that, the
government has planned with low-cost housing pro-
jects and urban petty trade as an effort to help the ur-
ban poor (Saari et al., 2015).
According to Saari et al. (2015), the second strategy
focuses on the increase in the right of possessions in
certain companies. Other than that, the Malays or
Bumiputera are given higher chances to hold a top
managerial positions. This can be seen in terms of quo-
ta systems, where participation of Malay ethnics in
business is increasing as they were giving special
rights to enter private sectors. Moreover, the major
involvement of Malays or Bumiputera in public sec-
tors has eventually introduced to Industrial Coordina-
tion Act (ICA), where it holds strong involvement of
Malays in medium and large-scale enterprise. This
results in a sense, where the composition of employees
portrays the compositions of major ethic groups in
Malaysia. Furthermore, the government also have col-
laboration with private sectors as a way to repair the
inefficiency and increase productivity by privatizing
public agencies. Finally, this approach will definitely
boost economic growth as the burden of government
sector in the aspects of financial and administrative
sectors has been reduced. The major drive of the poli-
cy, New Economic Policy (NEP) is to reach the ulti-
mate goal of being a developed nation by the year of
2020 with a steady and progressed economy.
1.3.2. New Economic Model (NEM). The New Econ-
omy Model (NEM) is the current on-going forth long-
term policy starting from 2010 until 2020. The New
Economic Model (NEM) is believed to be the back-
bone of Governments plan in bringing drastic changes
on the static condition of Malaysian economic in 21st
century. Malaysia is a country with sufficient natural
resources yet it faces great obstacle known as ‘Middle
Income Trap’. This limits the chances of the country to
reach a position of high income country. Thus, re-
search and development (R&D) should be done fre-
quently together with investments from other devel-
oped countries into Malaysia as a step to solve the
multidimensional issue (Azman et al., 2014).
1.3.3. Minimum Wage Policy. Minimum Wage Policy
was an implemented and effectively started on 1st
January 2013. This Government policy is an initiative
to upgrade Malaysian economy from a middle-
Problems and Perspectives in Management, Volume 15, Issue 1, 2017
59
income country to a high-income country by the year
2020. The National Wages Consultative Council
(NWCC) has determined the monthly minimum
wage rate of RM900 for employees in Peninsular
Malaysia whereas employees in Sabah, Sarawak and
Federal Territory of Labuan will receive minimum
wage of RM800. This policy is meant to minimize
the problem in the imbalances of wealth allocations
in Malaysia, Besides that, it is to ensure high income,
which is above Poverty Line Index (PLI) among em-
ployees in Malaysia (Ling et al, 2014).
2. Research methodology
2.1. Research instrument. The instrument used in this
paper is a quantitative method through the question-
naire forms, which are distributed to the 100 selected
respondents. This is to collect information from the
respondents about the incidence of poverty and income
inequality in Malaysian economic growth. The ques-
tionnaire form is the instrument used by the researcher
to collect data on few sections and elements that suits
the purpose of this research. The elements in the ques-
tionnaire forms are done by referring to the question-
naire from past researchers and modified according to
the suitability of current research objectives.
2.2. Research model. This paper uses multiple linear
models. There are one dependent variable and two
independent variables in this model.
Dependent variable: Economy growth (Y)
Independent variable: Poverty (X, Income inequality
(X
The multiple linear equation of this model is:
0
YXX
ೢೢ ೣೣ ,
where,
Y = Economy Growth
X1 = Poverty
X2 = Income inequality
= Error
0 = Intercept point
1,
2 = Partial coefficients to X1 and X2
2.3. Method of data analysis. Data are analyzed by
using statistical analysis based on the responses from
questionnaires. The software used for the data analysis
is Statistical Package for the Social Sciences (SPSS)
version 22. This software helps in the process of inter-
pretation of the collected data in order to test the sig-
nificance of dependent variable and independent vari-
able accurately. There are three types of test that will
be carried out in this research namely descriptive anal-
ysis, Pearson correlation test and regression test.
2.4. Descriptive analysis. According to Hussin et al.
(2014), a descriptive analysis can be used for any re-
search that uses qualitative method or quantitative re-
search as well. Descriptive analysis is done in the be-
ginning of a chapter’s analysis. Few types of descrip-
tive analysis used are frequency distribution and
graphic presentation, numerical measures such as
mean, mode and median.
2.5. Pearson correlation test. According to Berawi
(2014), correlation measures the degree/strength be-
tween two or more variables. The correlation analysis
does not take into account the variable that influences
it. The strength of correlation is based on the value of
r. The higher correlation coefficient, r shows a strong
positive correlation as the value approaches positive 1.
Correlation coefficient value is shown in Table 3.
Table 3. Interpretation of the correlation coefficient
Coefficient value range
Strength of the correlation
1.0
Perfect
0.80-0.99
Very strong
0.60-0.79
Strong
0.40-0.59
A
verage
0.20-0.39
Wea
k
0.01-0.19
Very wea
k
0.0
No relationship
Source: Hussin et al., 2014.
2.6. Regression test. According to Berawi (2014),
regression test measures the degree/strength of rela-
tionship between one dependent variable and more
than one independent variable. The degree/strength
between the dependent variable and independent vari-
ables depends to the value of R-square (R²). (R²) or the
determining coefficient is the ratio of change (varia-
tion) of the dependent variable, Economy Growth (Y),
which is explained together by the independent varia-
bles, Poverty (X1) and Income Inequality (X2).
3. Results and discussion
3.1. Descriptive data analysis and findings.
Table 4. Mean and standard deviation of poverty (N = 100)
Items Mean
Standard deviation Minimum
Maximum
Does incidence of poverty still exist in Malaysia? 4.1600
0.80050 1.00 5.00
Is incidence of poverty a major problem in Malaysia? 3.7100
0.87957 2.00 5.00
A
re government poverty reduction programs and policies successful in Malaysia?
3.1800
1.09526 1.00 5.00
Does Government provide enough financial aid and assistance for those suffering from poverty in Malaysia?
2.9900
1.16771 1.00 5.00
In your opinion, is poverty level high in rural area compared to urban area?
3.6900
1.07961 1.00 5.00
Can people from rural area survive without any financial aid from Government?
2.3900
1.11821 1.00 5.00
Problems and Perspectives in Management, Volume 15, Issue 1, 2017
60
Based on table 4, the majority of respondents agree
with the statement of “Does incidence of poverty
still exists in Malaysia?” with (mean = 4.1600).
Next, respondents agree with the statement of “is
incidence of poverty a major problem in Malaysia?”
with (mean = 3.7100). Respondents agree with the
statement of “Are Government poverty reduction
programs and policies successful in Malaysia?” with
(mean = 3.1800). Moreover, respondents agree with
the statement of “Does Government provide enough
financial aid and assistance for those suffering from
poverty in Malaysia?” with (mean = 2.9900), and
the statement of “In your opinion, is poverty level
high in rural area compared to urban area?” with
(mean=3.6900). Finally, the statement of
“Can people from rural area survive without
any financial aid from Government?” with
(mean = 2.3900).
3.2. Mean and standard deviation of income inequality.
Table 5. Mean and standard deviation of income inequality
Items Mean
Standard deviation Minimum Maximum
Does the huge gap between the high paid job and low paid job lead towards income inequality?
4.1700
0.69711 2.00 5.00
Do the people in rural area get lower income? 3.6300
0.90626 1.00 5.00
Do the people in urban area get higher income? 3.8000
0.91010 1.00 5.00
Is your monthly income enough for you and your entire family? 2.5500
0.99874 1.00 5.00
Does the primary sector (agricultural) provide low income? 3.1300
0.96038 1.00 5.00
Does the secondary and tertiary sector promise high income? 3.4700
0.96875 1.00 5.00
Based on Table 5, the majority of respondents agree
with the statement of “Does the huge gap between
high paid job and low paid job bring towards in-
come inequality?” with (mean = 4.1700). Next, re-
spondents agree with the statement of “Do the peo-
ple in rural area get lower income?” with
(mean = 3.6300). Furthermore, respondents agree
with the statement of “Do the people in urban area
get higher income?” with (mean = 3.8000). The
statement of “Is your monthly income enough for
you to bear you and your entire family?” shows
(mean = 2.5500), whereas the statement of “Does
the primary sector (agricultural) provide low in-
come?” shows (mean = 3.1300). Finally, the state-
ment of “Does the secondary and tertiary sector
promise high income?” shows (mean = 3.4700).
3.3. Mean and standard deviation of economy growth.
Table 6. Mean and standard deviation of economy growth
Items
Mean
Standard deviation
Minimum Maximum
Is Malaysia growing in the aspect of economy? 3.9600
1.10023
1.00 5.00
Can zero poverty bring towards greater economy growth in Malaysia?
3.7800
1.05964
1.00 5.00
Can smaller gap in income inequality bring towards greater economy growth in
Malaysia?
4.3700
0.83672
1.00 5.00
In your opinion, is the role of Government important to achieve economic growth
in Malaysia?
4.2500
0.75712
1.00 5.00
Can private sector help to boost up the economy growth in Malaysia?
2.9100
1.12002
1.00 5.00
Based on Table 6, respondents agrees with the state-
ment of “Is Malaysia growing in the aspect of econo-
my?” with (mean = 3.4500). Next, the statement of
“Can zero poverty bring towards greater economy
growth in Malaysia?” with (mean = 3.9600). Respond-
ents agree with the statement of “Can smaller gap in
income inequality bring towards greater economy
growth in Malaysia?” with (mean = 3.7800). The Ma-
jority of respondents agree with the statement of “In
your opinion, is the role of Government important to
achieve economic growth in Malaysia?” with
(mean = 4.3700). Next, respondents agree with the
statement of “Can private sector help to boost up the
economy growth in Malaysia?” with (mean = 4.2500),
and lastly the statement of “Do you think Malaysia is
stable in its economy growth?” with (mean = 2.9100).
3.4. Empirical data analysis and findings. 3.4.1.
Analysis of Pearson correlation. According to the
hypothesis 1 (H1) that was developed in this re-
search study.
Ha: There is a positive relationship between poverty
and economy growth in Malaysia.
Ho: There is a negative relationship between the pov-
erty and economy growth in Malaysia.
Table 7. Correlation between poverty and economy
growth
Variables
Povert
y
Economy growth
Poverty
Pearson correlation 1 .623**
Sig. (2-tailed)
.000
N
100 100
Economy growth
Pearson correlation .623** 1
Sig. (2-tailed)
.000
N
100 100
Analysis of Pearson correlation shows a positive rela-
tionship between the variable of poverty and economy
growth in Malaysia. There is a strong relationship be-
tween poverty and economy growth in Malaysia,
where r = 0.623, p < 0.01 is shown in Table 7. The
Problems and Perspectives in Management, Volume 15, Issue 1, 2017
61
higher the poverty level, the lower is the economic
growth in Malaysia. Therefore, alternative hypothesis
(Ha) is accepted, showing there is a positive relation-
ship between poverty and economy growth in Malay-
sia. This research hypothesis corresponds to research
done by Todaro (2012).
According to the hypothesis 2 (H2) that was developed
in this research study,
Ha: There is a positive relationship between income
inequality and economy growth in Malaysia.
Ho: There is a negative relationship between income
inequality and economy growth in Malaysia.
Analysis of Pearson correlation shows a positive rela-
tionship between the variable of poverty and economy
growth in Malaysia. There is an average relationship
between income inequality and economy growth in
Malaysia, where r = 0.490, p < 0.01 is shown in table
8. The higher is the income inequality, the lower is the
economic growth in Malaysia. Therefore, alternative
hypothesis (Ha) is accepted, showing that there is a
positive relationship between income inequality and
economy growth in Malaysia. This research corre-
sponds to research done by Xavier & Ahmad (2011).
Table 8. Correlation between income inequality and
economy growth
Variables Income inequalit
y
Economy growth
Income
inequality
Pearson correlation 1 .490**
Sig. (2-tailed) .000
N 100 100
Economy
growth
Pearson correlation .490** 1
Sig. (2-tailed) .000
N 100 100
**. Correlation is significant at the 0.01 level (2-tailed).
3.4.2. Analysis of regression
Table 9. Multiple linear regression
Model
Unstandardized
coefficients
Standardized
coefficients t Sig.
B Std. Error
Beta
1
(Constant) .203 .412 .494
.622
Povert
y
.686 .112 .506 6.115
.000
Income
inequalit
y
.371 .111 .278 3.359 .001
Dependent variable: economy growth
0
YXX
ೢೢ ೣೣ
0.203 0.506 0.2 78YXX
ೢೣ
(0.412) (0.112) (0.111)
The model above is a multiple linear regression model.
Based on the model above, Y is the dependent variable
(economy growth). There are two independent varia-
bles, namely X1 (poverty) and X2 income inequality).
0 is the intercept point with the value of 0.203. Next,
1 is the partial coefficient to X1 with the value of
0.506 and
2 is the partial coefficient to X2 with the
value of 0.278. Finally,
is error. The figures that are
stated in the brackets; (0.412), (0.112) and (0.111) are
the values of standard error which is shown in table 9.
This model portrays a positive relationship between
the dependent variable (economy growth) and inde-
pendent variables (poverty and income inequality).
The higher the level of poverty and income inequality,
the lower is the economy growth in Malaysia.
The value 0.203 means economy growth is 0.203,
when poverty and income inequality are zero or con-
stant. The value 0.506 shows that there is an increase
of one percentage in poverty, which affects the econ-
omy growth to decrease as much as 50.6% assuming
that other independent variable (income inequality) is
constant. The value 0.278 shows that there is an in-
crease of one percentage in income inequality which
affects the economy growth to decrease as much as
27.8% assuming that other independent variable (pov-
erty) is constant.
Table 10. R-square of multiple linear regression
Model R R
square
A
djusted R
square
Standard. error of the esti
-
mate
1
.672a
.451
.440 .49090
a. Predictors: (constant), income inequality, povert
y
Table 10 shows the value of R square (R²), 0.451,
where 45.1% changes in the dependent variable ,
(economy growth) can be explained together with the
independent variables (poverty) and (income
inequality) while the remaining 54.9% can be ex-
plained by the other variables apart from (poverty)
and X (income inequality).
Conclusion
This paper has examined the relationship between
poverty incidence and income inequality in Malaysia.
The study provides evidence that growth has contrib-
uted significantly in reducing poverty and income ine-
quality. However, growth alone is unable to explain
the total variation of the change in poverty incidence.
Further, the results suggest that the pattern of growth is
an important issue in determining the impact of growth
in poverty reduction and income inequality. The man-
ufacturing growth, which has been the main source of
growth of the economy, has contributed significantly
in reducing poverty incidence in Malaysia.
Income inequality can no longer be ignored and rele-
gated to the backgroundof policy determination during
periods of economic prosperity.We have seen in
severalcrisis-hit countries that poverty incidence fell
because the average income of the people increased
through increased employment brought about mainly
by economic growth that resulted from well-directed
government interventions and sound
macroeconomicpolicies. But, often, this economic
growth also came as a result of inappropriate
andunsustainable economic activities associated with a
bubble economy.
Problems and Perspectives in Management, Volume 15, Issue 1, 2017
62
Reducing income inequality is never an easy task be-
cause it is very time-consuming, costly and contradict-
ing. Governments always wanted to experience high
growth but it will lead to inflation. To reduce inflation,
concretionaryfiscals/monetary policies are used. When
income tax, corporate tax and GST tax are high, peo-
ple who live in poor will never get to live a better life
while the rich ones are getting better each day, causing
a higher income inequality. The major conflicts in
achieving macroeconomic objectives of stable growth,
low inflation, low unemployment, higher living stand-
ards and less income inequality are always exist.
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