Two Decades of Structural Transformation and Dynamics of Income Equality in Indonesia
Dartanto, Teguh; Yuan, Edith Zheng Wen; Sofiyandi, Yusuf | October 2017
Abstract
Successful reductions in poverty, resulting from substantial increases in income and structural transformation, have been associated with growing levels of income inequality. This paper explores the link between structural transformation and inequality in Indonesia by applying Theil’s L decomposition (both static and dynamic) to the National Socio-Economic Surveys of 1996, 2005, and 2014 and panel data analysis of provincial macroeconomic datasets. This study confirms that, as has been seen in other developing countries, Indonesia has experienced an agriculture–service transition, before the industry sector has matured. Moreover, the Inverted U Kuznet curve exists in Indonesia. Inequality will increase in tandem with an increase in per capita income until it reaches an income level beyond which the inequality starts to decline. From both static and dynamic decomposition of Theils’s L, this study found that (i) the root cause of increasing inequality in Indonesia is the pure inequality effect (unexplained effect); (ii) population shifts from the agriculture sector to either the industry or service sectors, from rural to urban areas and from informal to formal employment are the second contributor to explain increases in inequality; (iii) an increase in educational attainment has also contributed to increasing inequality during the last 2 decades; and (iv) even though the contribution is cancelled out, increasing inequality has been curbed by the growing income from those working in the agriculture sector, in the informal sector, by those living in rural areas, and by those without formal education. Finally, our estimation results suggest that the structural transformation of economic development was responsible for the growing inequality in Indonesia. Nevertheless, the increasing share of service sector to the national gross domestic product has degraded the growth rate of inequality during the observation period.
Citation
Dartanto, Teguh; Yuan, Edith Zheng Wen; Sofiyandi, Yusuf. 2017. Two Decades of Structural Transformation and Dynamics of Income Equality in Indonesia. © Asian Development Bank Institute. http://hdl.handle.net/11540/7508.Keywords
Development Indicators
Environmental Indicators
Economic Indicators
Educational Indicators
Demographic Indicators
Health Indicators
Disadvantaged Groups
Low Income Groups
Socially Disadvantaged Children
Rural Conditions
Rural Development
Social Conditions
Urban Development
Urban Sociology
Urban Plans
Urbanism
Urban agriculture
Economic Development
Rural Urban Migration
Cities
Migration
Alleviating Poverty
Anti-Poverty
Extreme Poverty
Fight Against Poverty
Global Poverty
Health Aspects Of Poverty
Indicators Of Poverty
Participatory Poverty Assessment
Poverty Eradication
Poverty Analysis
Poverty In Developing Countries
Poverty Reduction Efforts
Urban Poverty
Urbanization
Urban Services
Urban Projects
Urban Problems
Urban Poverty
Urban Policy
Urban Planning
Urban Infrastructure
Urban Health
Urban Government
Urban Economic Development
Urban Development Finance
Urban Development
Urban Conditions
Urban Communities
Urban Population
Poor
Economic forecasting
Health expectancy
Social groups
Political participation
Distribution of income
Inequality of income
Developing countries
Rural community development
Mass society
Social change
Social policy
Social stability
Population
Sustainable development
Peasantry
Urban policy
Urban renewal
Local government
Urban renewal
Urban housing
Urban sociology
Transit systems
Rapid transit
Public transit
Mass transit
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