Does electrification affect rural poverty and households’ non-food spending? Empirical evidence from western Indonesia

Abstract

The study aims to determine the effect of electrification on rural poverty and households’ non-food spending (NFS). Using a cross-province dataset of western Indonesia from 2007 through 2017, an econometric model was used to analyze the causal relationship between the variables. The econometric model is a panel cointegration test, panel VECM, and Granger causality tests. The study pointed out three main findings. Firstly, there is a long-run equilibrium relationship between rural poverty and households’ NFS and electrification. In the long run, the electrification program has a negative and significant on households’ NFS. Secondly, in the short run, electrification significantly reduces poverty and increases households’ NFS. Thirdly, the Granger causality test pointed out that there is one-way causality from electrification to rural poverty and households’ NFS. The rural poverty reduction and the raising households’ NFS are positive impacts of the electrification program. Therefore, the local governments in western Indonesia should be electrification programs as one of the strategic options for rural poverty reduction in the region.

Keywords:

• electrification
• rural poverty
• household’s non-food spending
• panel vector error correction model
• Granger causality test

JEL Classification:

• I32
• I38
• D1

PUBLIC INTEREST STATEMENT

Poverty alleviation has become a major issue in the economic development programs of Indonesia. Given that most of the poor live in rural areas, the Indonesian government has designed various development programs to reduce the rural poverty rate. One of the rural infrastructure development programs is related to the provision of electrical energy resources. Using cross-provinces data from Western Indonesia, the study proved that electrification significantly reduces rural poverty, and increases the share of household spending on non-food goods. In other words, decreasing poverty reduction and increase in household non-food spending are the real impacts of the electrification program.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

The authors received no direct funding for this research.

Notes on contributors

Ikhsan Ikhsan

Ikhsan Ikhsan is a full-time lecturer in the Economics Department of Economics and Business Faculty at Universitas Syiah Kuala, Indonesia. His research interest: are economic development, poverty and public policy, and economics and finance.

Khairul Amri

Khairul Amri is a full-time lecturer and researcher in the Faculty of Islamic Economics and Business at Universitas Islam Negeri Ar-Raniry, Indonesia. His area of research interest is mainly macroeconomic issues such as fiscal policy, poverty and employment, and banking and economic development.