Industrial Location and Economic Disparities among States in Malaysia

—Decomposition Analysis by Synthetic Theil Index: 1970∼90—

Abstract

This paper aims to analyze the changes in the spatial industrial structure from 1970 to 1990 and discuss its implications on economic disparities among states and development policies in Malaysia. It was found that, in spite of the efforts of the Malaysian government to reduce the states' economic disparity, the economic gap among state has been increasing in the process of industrialization. One of the factors causing the widening economic gap was the concentration of high-productivity industries in some states.

The analysis is mainly based on the decomposition of inequality index and the data mainly used is the population censuses conducted in 1970, 80 and 91 and various issues of Malaysia Plan. Based on the analysis it is shown that, though Malaysia has succeeded in relocating labor-intensive and low-productivity industrial sectors from the developed states such as Selangor, Penang and Johore to less developed regions, its equalizing impact was not enough to dominate the inequalizing impact of the concentration of modern-technology and high-productivity activities to the former. Large part of the productivity gap can attributed to two industries, as agriculture and manufacturing. The former factor has decreased by the various projects to less developed areas in 1970 s though it returned to deterioration in 1980 s, and the latter factor was never improved during the period at all. So we must say that NEP was not successful to eliminate the gap between states despite its well-known characteristics of policy-led equalization.

Malaysian experiences show how it is difficult for governments to redress the economic gaps among states. The results of this paper will contribute to profound understanding of economic development and income inequality in developing countries.