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    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
    Show allCollapse
    Citable URI
    http://hdl.handle.net/11540/7508
    Metadata
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    adbi-wp783.pdf (648.4Kb)
    Author
    Dartanto, Teguh
    Yuan, Edith Zheng Wen
    Sofiyandi, Yusuf
    Theme
    Poverty
    Urban
    Labor Migration
     
    Copyright 2016-2020 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2020 Asian Development Bank Institute, except as explicitly marked otherwise