Determination of Income Inequality in Malaysia

Wong, Mun Kit (2025) Determination of Income Inequality in Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

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Abstract

This study investigates the long-run and short-run relationships between income inequality and its key macroeconomic determinants such GDP per capita, foreign direct investment (FDI), population growth, and education in Malaysia, using the ARDL bounds testing approach. The empirical results confirm the existence of a long-run cointegration relationship among these variables. Specifically, GDP per capita was found to have a significant negative effect on income inequality in the long run, supporting the Kuznets hypothesis, while FDI and education significantly increased income inequality over time. Population growth showed a negative but statistically insignificant relationship with inequality. In the short run, FDI contributed to reducing income inequality, GDP per capita exhibited mixed effects, and education showed a positive but insignificant relationship with inequality. The model passed various diagnostic and stability tests, enhancing the robustness and reliability of the results. These findings provide important insights for policymakers, highlighting the need for inclusive economic growth, targeted FDI strategies, and equitable access to quality education in order to achieve sustainable reductions in income inequality. Overall, this study contributes to the existing literature by offering empirical evidence on the complex and multidimensional nature of income inequality in Malaysia, while providing practical policy recommendations to promote more equitable development.