Is Malaysia’s Economic Growth Associated with the Creation and Expansion of the Middle Class in Malaysia?

Abstract

It has been argued in the development literature that a sizeable and stable middle class in the society is imperative to foster economic growth and democracy. The creation and expansion of the middle class will stimulate the demand for better quality consumer goods, induce investment, and hence increase and sustain economic growth. The middle-class is also regarded as an important foundation for the emergence and development of a strong democratic civil society, that will induce the demand not only for better public services, but also for a more effective, accountable and transparent government. Furthermore, a large and expanding middle class will also lessen polarisation between the poor and the rich, reduce social tension and conflict, and hence foster socio-political stability. In this regards, the objective of this paper is therefore to measure the size of the middle-class in Malaysia. Examining the size of the middle class seems plausible since Malaysia aspires to transform her economy not only towards a high income, inclusive, and sustainable economy, but also towards a matured democratic society. Besides, in the last four decades Malaysia has been generally successful in sustaining rapid economic growth. In this regards, the objective of this paper is to examine whether the rapid economic growth in the past decades is associated with the enlargement of the size of the middle class society in Malaysia. Towards this end, we measure the size of the middle class by the percentage of household whose income falls within the range of 25% below to 25% above the median household income. Here, in our analysis we employ data from the Household Expenditure Survey (HES). Our findings show that, quite surprisingly, the middle class in Malaysia is relatively small, constituting only about 30% of the total households, and it is declining, albeit marginally. We conclude that, the middle class is relatively small and it seems that the rapid economic growth is not coupled with the enlargement of the middle class society in Malaysia.

Keywords: economic growth, middle class, size of middle class, Malaysia