Poverty in Indonesia 1984–2002: the impact of growth and changes in inequality

Abstract

This paper examines the growth elasticity of poverty across three development episodes in Indonesia between 1984 and 2002, after controlling for inequality. It relies on estimation of panel data from the National Socio-Economic Survey conducted by the central statistics agency. Contrary to expectations, the growth elasticity of poverty was virtually indistinguishable across the three development episodes – a period of far-reaching policy liberalisation (1984–90); a second period of slower liberalisation (1990–96); and the period of recovery from the Asian financial crisis (1999–2002). Growth was pro-poor in all three periods, while the impact of growth on poverty was either augmented or offset by changes in inequality, depending on the period. Only during the first liberalisation period did a reduction in inequality serve to augment the impact of growth on poverty.

Acknowledgements

I am grateful to Chris Manning, Hal Hill, Budy Resosudarmo, Ross McLeod and two anonymous referees for their advice on previous drafts. Those who gave advice bear no responsibility for any errors or deficiencies in the final version.

Notes

¹However, the BPS poverty line has some shortcomings, especially in relation to regional price differences, which are calculated and discussed in Nashihin (2007).

²For a full description of the process, see Miranti (2007).

³For consistency, four new provinces – Bangka Belitung, Banten, Gorontalo and North Maluku – which first appeared in the 2002 Susenas as a result of province fragmentation – have been re-combined with the provinces they were separated from, in order to match the former provinces of South Sumatra, West Java, North Sulawesi and Maluku.

⁴While trade liberalisation would have had a predictable impact on poverty, the impact of other kinds of reform on poverty is less clear.

⁵Hill (2000) points out that the strongest trade reform took place in the 1986–89 period, when protection was reduced progressively.

⁶The dummies for the development episodes are used to capture the macroeconomic conditions during the specific development episodes.