By Renee Ong

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Though inward foreign direct investment (FDI) has been a key driver in propelling Malaysia’s historic economic transformation from a commodity-dependent, agriculture-based economy into the modern, industrialized economy it is today, research on the impact of FDI on income inequality in Malaysia remains limited. This paper aims to build upon the findings of a study conducted by Makaramah-Harun et al. on this topic of scholarship and further address how FDI may increase income inequality between skilled and unskilled workers in Malaysia. I argue that the redirection of FDI towards more skilled labor sectors and the positive correlation between FDI and displacement of unskilled domestic workers have contributed to growing income disparities between these classes of workers. Furthermore, I assert that the Malaysian government’s policies to attract export-oriented, high-tech FDI and its pro-bumiputra (ethnic Malay) national policies that resulted in inequitable FDI gains among skilled and skilled workers have not only failed to address but have also exacerbated this inequality.

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