Poverty-growth-Inequality Triangle: The Case of Indonesia

Sumarto, Sudarno and de Silva, Indunil (2013): Poverty-growth-Inequality Triangle: The Case of Indonesia.

Abstract

This paper decomposes changes in poverty into growth and redistribution components, and employs several pro-poor growth concepts and indices to explore the growth, poverty and inequality nexus in Indonesia over the period 2002-2012. We find a ‘trickle-down’ situation, which the poor have received proportionately less benefits from growth than the non-poor. All pro-poor measures suggest that economic growth in Indonesia was particularly beneficial for those located at the top of the distribution. Regression-based decompositions suggest that variation in expenditure by education characteristics that persist after controlling for other factors to account for around two-fifths of total household expenditure inequality in Indonesia. If poverty reduction is one of the principal objectives of the Indonesian government, it is essential that policies designed to spur growth also take into account the possible impact of growth on inequality. These findings indicate the importance of a set of super pro-poor policies. Namely, policies that increase school enrolment and achievement, effective family planning programmes to reduce the birth rate and dependency load within poor households, facilitating urban-rural migration and labour mobility, connect leading and lagging regions and granting priorities for specific cohorts (such as children, elderly, illiterate, informal workers and agricultural households) in targeted interventions will serve to simultaneously stem rising inequality and accelerate the pace of economic growth and poverty reduction.

• Item Type: MPRA Paper
• Language: English
• Keywords: Key Words: Growth, poverty, inequality, pro-poor, decomposition
• Subjects: I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I32 - Measurement and Analysis of Poverty

References

Atkinson, A.B. (1987), On the Measurement of Poverty, Econometrica 55, 749–764.

Bhagwati, J.N. (1988), Poverty and Public Policy, World Development Report, Vol. 16 (5),539-654.

Banerjee, A. V. and E. Duflo (2005), Growth Theory through the Lens of Development Economics, Amsterdam: North Holland, vol. 1A, 473–552.

Coudouel A., Dani A.A. and Paternostro S. (2006), Poverty and social impact analysis of reforms: lessons and Examples from Implementation. World Bank. Washington D.C.

Datt, G., and M. Ravallion (1992), Growth and edistribution Components of Changes in Poverty Measures: A Decomposition with Applications to Brazil and India in the 1980s. Journal of Development Economics 38 (2), 275–295.

Freidman, Jed. (2002), “How Responsive is Poverty to Growth? A Regional Analysis of Poverty, Inequality, and Growth in Indonesia, 1984-1999.” RAND Working Paper, June.

Foster, J., Shorrocks, A.F., (1988). Poverty orderings. Econometrica 56, 173–177.

Heltberg, R. (2001), “The poverty elasticity of growth” Institute of Economics, University of Copenhagen, Unpublished manuscript.

Jain, L.R. and Tendulkar, S.D. (1990), 'The Role of Growth and Redistribution in the Observed Change in Head-count Ratio Measure of Poverty: A Decomposition Exercise for India', Indian Economic Review, XXV, 165-205.

Kakwani, N (1993), Poverty and Economic Growth with Application to Côte d’Ivoire, Review of Income and Wealth, 39(2), 121–39.

Kakwani, N. (1997), 'On Measuring Growth and Inequality Components of Poverty with Applications to Thailand', Discussion Paper, School of Economics, The University of New South Wales, Australia.

Kakwani, N., S. Khandker, and H. Son (2003), Poverty Equivalent Growth Rate: With Applications to Korea and Thailand, Technical Report, Economic Commission for Africa.

Kakwani, N. and Pernia, E. (2000), What is Pro-poor Growth, Asian Development Review,Vol. 16, No.1, 1-22.

Kakwani, N. and Son, H. H. (2008), Poverty Equivalent Growth Rate," Review of Income and Wealth, Vol. 54, No. 4, pp. 643-655.

McCulloch, N., Robson, M. and Boulch, B. (2000), “Growth, Inequality and Poverty in Mauritania: 1987-1996”. IDS working paper. Sussex: Institute of Development Studies.

Morduch, J. and Sicular, T. (2002), “Rethinking inequality decomposition, with evidence from rural China”, The Economic Journal, vol. 112, pp. 93-106.

Ravallion, M. (2004a), Growth, Inequality, and Poverty: Looking Beyond Averages, Oxford: Oxford University Press, chap. 3, UNU-WIDER studies in development economics.

Ravallion, M. and Chen, S. (2003), Measuring Pro-poor Growth, Economic Letters, Vol. 78 (1), 93-99.

Ravallion, M., Huppi, M., (1991), Measuring changes in poverty: a methodological case study of Indonesia during an adjustment period. World Bank Economic Review 5, 57–84.

Said, A., W. Widyanti (2002), The Impact of Economic Crisis on Poverty and Inequality. In Khandker, S (Ed.). The impact of the East Asian Financial Crisis Revisited. World Bank Institute (WBI) and the Philippine for Development Studies (PIDS).

Shorrocks, A. F. (1999), 'Decomposition Procedures for Distributional Analysis: A Unified Framework Based on the Shapley Value', mimeo.

Sumarto, S., Suryahadi, A and Widyanti, W., (2005), Assessing the Impact of Indonesian Social Safety Net Programmes on Household Welfare and Poverty Dynamics‟, The European Journal of Development Research, Vol.17, No.1, March 2005, pp.155–177

Sumarto, S. and Bazzi, S., (2011), Social Protection in Indonesia: Past Experiences and Lessons for the Future‟, Paper presented at the 2011 Annual Bank Conference on Development Opportunities (ABCDE) jointly organized by the World Bank and OECD, 30May-1 June 2011, Paris.

D. Suryadarma, R. P. Artha, A. Suryahadi and S. Sumarto (2005), A Reassessment of Inequality and Its Role in Poverty Reduction in Indonesia‟, Working Paper, SMERU Research Institute, Jakarta.

Suryahadi, A., Suryadarma, D., and Sumarto, S. (2009), “The Effects of Location and Sectoral Components of Economic Growth on Poverty: Evidence from Indonesia”, Journal of Development Economics, 89(1), pp. 109-117.

Suryahadi, A., Hadiwidjaja, G., Sumarto, S. (2012), Economic growth and poverty reduction in Indonesia before and after the Asian financial crisis. Bulletin of Indonesian Econommic Studies, 48(02), pp. 209-227.

Timmer, P. (2004), The Road to Pro-poor Growth: Indonesia's experience in regional perspective. Bulletin of Indonesian Economic Studies, 40(2), 177-207.

Tjiptoherijanto, P., S. Remi (2001), Poverty and Inequality in Indonesia: Trends and Programs. Paper Presented at International Conference on the Chinese Economy “Achieving Growth with Equity”, Beijing.

Wilkie, P. J. (1996), Through-Time Changes in Family Income Inequality– the Effect of Non-synchronous Regional Growth. – Applied Economics Vol. 28, No. 12, pp. 1515–1527. World Bank (2005), World Development Report 2006: Equity and Development, Washington: World Bank.