Why Poor Regions Remain Poor? Evidence from Malaysia

In Malaysia, the various economic reforms and strategies undertaken by the government since the Third Malaysia Plan beginning in 1971 until the present Ninth Malaysia Plan have not brought about significant convergence in real per capita income and output across the country. Despite all states recording economic growth, the development gap between regions, states and rural-urban areas remained wide. Moreover a pattern of regional unemployment has persisted, with unemployment rates being consistently higher than the national average in those states with lower than average real per capita income and output. The purpose of this study are firstly to determine why the gap remained wide that is some poor states stay poor and rich states become richer for the past years and secondly to identify industries or sectors in which the states has had a comparative advantage. Using location quotient analysis, this study utilize Malaysian data for the period 1970 till 2006. The results suggest that the development gap between regions and states in the Malaysian economy remained wide due to the fact that economic activities of the poor regions of the east and that of Sabah and Sarawak are concentrated in the agricultural sectors while that of the richer regions in the centre are concentrated in the manufacturing and the services sectors. Similarly the poor states of Kedah and Kelantan are characterized by economic activities concentrated in the agriculture sector while the richer states of Penang and Selangor are characterized by the manufacturing sectors. This finding indicates that Malaysian government economic reforms and development strategies need to be reevaluated and restructured .