CONNECT WITH US Understanding andUnlocking State-LevelGrowth Potential inMalaysia © 2026 International Bank for Reconstruction and Development / The World Bank 1818 H Street NWWashington DC 20433Telephone: 202-473-1000Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. Thefindings, interpretations, and conclusions expressed in this work do not necessarily reflectthe views of The World Bank, its Board of Executive Directors, or the governments theyrepresent. The World Bank does not guarantee the accuracy, completeness, or currency of thedata included in this work and does not assume responsibility for any errors, omissions,or discrepancies in the information, or liability with respect to the use of or failure to usethe information, methods, processes, or conclusions set forth. The boundaries, colors,denominations, and other information shown on any map in this work do not imply anyjudgment on the part of The World Bank concerning the legal status of any territory or theendorsement or acceptance of such boundaries. Nothing herein shall constitute or be construed or considered to be a limitation upon orwaiver of the privileges and immunities of The World Bank, all of which are specificallyreserved. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encouragesdissemination of its knowledge, this work may be reproduced, in whole or in part, fornoncommercial purposes as long as full attribution to this work is given. Attribution:Please cite the work as follows: World Bank (2026) “Understanding andUnlocking State-Level Growth Potential in Malaysia”, Washington, DC: The World Bank. Any queries on rights and licenses, including subsidiary rights, should be addressed toWorld Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433,USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Cover design and layout:Kane Chong Sdn BhdCredit for non-WB images:istockphoto.com Acknowledgements This report was co-led by Apurva Sanghi and Deisigan Shammugam. Core analytical support camefrom Agustin Samano Penaloza, Aakash Mohpal, Adam Merican bin Mohd Din, Kersten Kevin Stamm,Rafaela Martinho Henriques, Putu Sanjiwacika Wibisana, Izzati Afiqah binti Ab Razak, Fionne Lim JingWen, and Dr Kian Howe Ong (University of Nottingham Ningbo China). We are grateful to YBhg. Dato’ Sri Dr Mohd Uzir Mahidin, Dato’ Hamdan Majeed, Dr. Tricia Yeoh, MarkRoberts, Andreas Eberhard, Gonzalo Varela, Matthew Selwyn Dornan, Narae Choi, John Hosung Lee,Linus Pott, Melissa Li Jun Chin, and Anirudh Rajashekar for their constructive input. Special thanks goto Zafer Mustafaoglu, Judith Green, and Lars Christian Moller for their overall guidance. The team also extends its gratitude to the Ministry of Finance Malaysia, the Department of StatisticsMalaysia, the Economics Department of Bank Negara Malaysia, and Think City for their invaluablesupport and feedback on the report’s findings. Jeannette Chern Yuet Goon led external communications. Kane Chong managed production anddesign, while Minisha Deepu and Tay Yi Ting provided administrative support and editorial assistance. The report is based on current information as of February 2025. Please contact Apurva Sanghi (World Bank Lead Economist for Malaysia) at asanghi@worldbank.org,Deisigan Shammugam at dshammugam@worldbank.org (World Bank Economist for Malaysia) forquestions, comments, or suggestions regarding the report. Table of Contents AcknowledgementsSummaryContextMethodological narrativeResultsKey message 1:Richer states have grown faster than poorer states, resulting in divergence andincreased regional income inequalityBox 1:A rising tide lifts all boats, yet richer states gain more than poorer onesBox 2:Perak is a successful converging stateBox 3:Convergence in Brazil, China, and the EUKey message 2:Contrary to global trends, most Malaysian states have increased their potentialgrowth in the last decadeKey message 3:Poorer states could have caught up to richer states if their actual growth had matchedtheir potential growthKey message 4:However, most states underperformed relative to their potential growth, with poorerstates exhibiting a larger disparity from their potential compared to richer statesBox 4:Scenario analysis of potential gains from increased investment in lagging states in MalaysiaKey message 5:Several structural factors help explain these outcomes, including some friction inlabor and capital mobility, limited structural transformation, and lower educational attainment inlagging regionsBox 5:Internal migration in MalaysiaKey message 6:Even within individual states, economic potential varies significantly across districtsBox 6:Identifying barriers to economic potential in low-EPI districts of lagging states in MalaysiaKey message 7:Indeed, some districts exceeded or fell short of their estimated economic potential inboth richer and poorer states