The Determinants of Urban Household Poverty in Malaysia

Abstract

Since independence in 1950s Malaysia has been recognized as one of the more successful countries in fighting poverty: head count ratio came down to 5.7% by 2004. However the recent process of rapid urbanization has led to an increase of urban poverty aggravated further by the 1997 Asian financial crisis. It is important to understand the nature and scale of urbanization, the various driving forces that affect it and the determinants of urban poverty as linked to this process. Our research identified the determinants of urban poverty in Malaysia using a logistic regression. A sample of 2,403 urban households from the 2004-05 Household Expenditure Survey (HES) had been used in this research. We first estimated the probability of households with specified characteristics to fall below Malaysia’s official poverty line. Then we analyzed the sensitivity of the probability estimated to shift of the poverty line over a reasonable range. Results showed that human capital significantly reduced the chance of being poor while migrant workers are more prone to poverty. Household size, race and regions were also important determinants of poverty outcome in urban Malaysia. The findings had important policy implications for Malaysian government which had pledged to reduce overall poverty rate to 2.8% and eradicated hardcore poverty by 2010 under the Ninth Malaysian Plan.