Human Capital and Income Distribution in Malaysia: A Case Study

Abstract

Malaysia has achieved a remarkably high economic growth as a result of strong government policy and political stability. The national vision to achieve the status of newly industrialized nation by year 2020 seemed to be realized. However, achieving high economic growth alone cannot guarantee a decent life of the society if there is large income gap between them. Based on the historical data, the trend of income inequality in Malaysia has been unstable since independence even though human capital development has been expanding over time. This paper aims to identify the role of human capital in explaining income distribution in Malaysia. The analysis is based on 4,003 household data collected through a survey conducted in 2007-2008 throughout the Peninsular Malaysia. The study constructs Gini coefficient by various segments like ethnics, regions and strata to look at patterns of income distribution. In addition, other measurements of income distribution such as income ratio and income percentage will also be used in the analysis. A regression model will be specified to estimate the role of human capital on income distribution. In the model, household income ratio will be used as dependent variable whilst household characteristics including human capital achievement, location and regions will act as independent variables.