Yusof Saari, a Malaysian who now serves as economic advisor to a government ministry in the UAE, said economic growth in Selangor and Kuala Lumpur has always surpassed that of the other states despite labour productivity being almost uniform across the country.

He said data from 2005 to 2023 showed that Selangor has been the highest contributor to the nation’s GDP since 2005. The state accounted for 23% of the GDP in 2005. In 2023, the figure rose to 26.7%.

“Kuala Lumpur has also demonstrated significant contribution (during the same period), rising from 13.6% to 16.4%,” he said in comments sent to FMT.

On the other hand, Johor’s contribution has remained at 10% consistently over the same period, while in Sarawak, it has declined from 11.7% to 9.3%.

Unequal resource concentration

Yusof attributed the disparity to the unequal concentration of resources between Peninsular Malaysia’s central region and other parts of the country.

“This suggests that resource allocation, investment and economic opportunities are disproportionately concentrated in the most developed states,” he said.

He said Malaysia’s approach to economic development has been predominantly centralised at the federal level. As a result, it has been unable to successfully address inequalities among the states, he added.

Yusof said centralisation overlooks the unique characteristics and resource endowments of individual states, resulting in suboptimal growth outcomes.

He said the widening gap in GDP contributions between Selangor-Kuala Lumpur and the rest of the country also highlights a growing regional economic disparity.

Same productivity levels nationwide 

However, while Selangor and Kuala Lumpur have consistently benefited from more resources, productivity has remained at the same level as that of the other states, said Yusof.

He said data produced by the statistics department for 2006 to 2023 shows that labour productivity, expressed as GDP per worker, has risen or declined at the same rate in all states.

Yusof said the concentration of resource allocation, including investment and infrastructure, as well as industries, in Selangor and Kuala Lumpur has helped to amplify their economic output despite comparable productivity levels in the rest of the country.

“Developed states like Selangor and Kuala Lumpur often attract higher levels of investment, infrastructure development, and skilled labour due to their established economic ecosystems,” he said.

“This concentration can lead to higher aggregate output, even if productivity levels are similar,” he added.

He said Selangor and Kuala Lumpur have also benefited from urbanisation and agglomeration economies, where businesses and industries cluster together, leading to more efficient production, innovation and access to markets.

“This boosts overall GDP without necessarily increasing individual worker productivity relative to less developed states,” he added.

Yusof pointed out that states like Selangor and Kuala Lumpur also tend to have a higher share of high-value-added industries such as finance, technology and services compared with other states which are more agriculture or manufacturing-based economies.

“This structural difference amplifies GDP growth in developed states,” he said.

Need for decentralisation

Given the likelihood that continuing with the current approach will prolong the disparity, Yusof said, the government must embrace a decentralised economic model.

For instance, he said, Johor can achieve significant economic growth and reduce migration to Singapore by addressing key economic, infrastructure and policy gaps while emphasising its strategic location and resources.

Areas that offer potential growth for Johor are investments in high-value manufacturing, technology and the services sectors. Johor’s proximity to Singapore also makes it attractive for high-tech industries and logistics, he said.

Yusof said the government should also strengthen and expand special economic zones like Iskandar Malaysia to attract foreign direct investment by offering competitive incentives and ease of doing business.

“We must improve cross border connectivity infrastructure for smoother movement of talents and goods. Also, promote Johor’s rich natural heritage, including its islands, national parks, and cultural attractions, to develop a robust tourism sector,” he said.

Yusof said continuing with the federally centralised planning approach will not help the other states.

“States differ in resource endowment, labour market dynamics, and economic readiness.

“Averaging development plans dilutes the effectiveness of policies, leaving many states unable to reach their full potential.

“To rectify this, the 13th Malaysia Plan must pivot towards a decentralised approach, state-empowered model that recognises and leverages on the strengths of each state,” he said.