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This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
Article
Growth and Inequality in Indonesia: Does Kuznets Curve Hold?
Author(s)
G. A. Diah Utari, Retni Cristina
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DOI:10.17265/1548-6583/2015.02.003
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ABSTRACT
Sustainable economic growth has put Indonesia as a middle-income country (MIC) and currently, the level of per capita income has already exceeded US$3,000. The increase in income per capita is followed by the increasing number of middle-class population and the reduction in poverty. However, it has not been accompanied by declining inequality that reflects the quality of economic growth. According to Kuznets theory, an increase in inequality is a common problem in the process of economic growth. Inequality will further decline after the country has reached a certain threshold level of income. This study aims to analyze the trend and nature of income inequality in Indonesia and to test whether the Kuznets Curve holds. This paper used dynamic panel method with 26 provincial panel data from 2000 to 2011. The empirical result proves the existence of inverted U-shaped Kuznets Curve in Indonesia and it may have the turning points when the real GDP per capita in each province reached Rp. 179.41 million/year or around US$17.000. For the determinant of inequality in Indonesia, this study found that the percentage of urban population, inflation, and share of agricultural sector contributed to the increase of inequality, while high-level education and share of industrial sector are associated with the lower level of inequality.
KEYWORDS
growth, middle class, poverty, inequality, Kuznets Curve, dynamic panel
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