A direct test of Kuznets in a developing economy: a cross-district analysis of structural transformation and inequality in Indonesia

Figures & data

Figure 1. The Kuznets process.

Source: Anand and Kanbur (1993).

Figure 2. (a) Percentage of agriculture, industry and services in value added; and (b) percentage of employment in agriculture, industry and services in Indonesia.

Source: Groningen Growth and Development Centre (GGDC) 10-Sector database.

Figure 3. Income per capita and inequality of Indonesian district versus countries, 2015.

Sources: Authors’ estimates, UNU-WIDER, World Income Inequality Database (WIID3.4) and World Bank (2019).

Figure 4. Density curve of consumption per capita by sector of the economy.

Note: The horizontal axis is the log of expenditure per capita per month: (a) agriculture; (b) non-manufacturing industry; (c) manufacturing; (d) trade and transportation; (e) finance; and (f) non-market services.

Source: Authors’ estimates.

Figure 5. Atkinson index of inequality in various sectors, and within- and between-sector components, 1992–2017.

Note: (a) Atkinson index with ϵ = 0; and (b) Atkinson index with ϵ = 1.

Source: Authors’ estimates.

Figure 6. Relationship between sectoral employment share and inequality, 1992–97, 2000–17 and 1992–2017.

Source: Authors’ estimates.

Table 1. Regression results with Gini indicator as a dependent variable, without control variables.

Variables	Gini coefficient
	(1)	(2)	(3)	(4)	(5)
	Non-manufacturing	Manufacturing	Trade/transport	Finance	Other services
Employment share	0.118**	0.0973**	0.113**	0.910***	0.260***
	(0.0596)	(0.0378)	(0.0453)	(0.137)	(0.0474)
Squared employment share	−0.00363*	−0.00147*	−0.00132*	−0.0838***	−0.00396***
	(0.00208)	(0.00081)	(0.000716)	(0.0196)	(0.000977)
Pre-AFC (1992–97) dummy interaction with  …
Employment share	−0.127*	−0.120***	−0.0955*	−0.198	−0.175***
	(0.0673)	(0.0443)	(0.0508)	(0.27)	(0.0473)
Squared employment share	0.00416*	0.00214	0.00117	−0.00999	0.00290***
	(0.00216)	(0.00132)	(0.00103)	(0.0506)	(0.000996)
During AFC (1998–2000) dummy interaction with  …
Employment share	−0.267*	−0.0577	−0.104	−0.353	−0.298***
	(0.141)	(0.0693)	(0.0925)	(0.269)	(0.0918)
Squared employment share	0.0109*	0.00086	0.00143	0.0598	0.00671***
	(0.00641)	(0.00189)	(0.00155)	(0.0478)	(0.00224)
Pre-AFC (1992–97) dummy	−7.842***	−6.829***	−6.746***	−5.824***	−6.911***
	(0.479)	(0.487)	(0.436)	(0.671)	(0.439)
During AFC (1998–2000) dummy	−8.405***	−7.647***	−8.400***	−7.210***	−8.533***
	(0.552)	(0.637)	(0.565)	(1.223)	(0.397)
District fixed effect	Yes	Yes	Yes	Yes	Yes
Year effect	Yes	Yes	Yes	Yes	Yes
Control variables	No	No	No	No	No
Constant	−71.74***	−77.12***	−76.69***	−76.37***	−85.73***
	(10.27)	(9.663)	(9.567)	(9.627)	(9.157)
Observations	7351	7334	7326	7352	6832
R^2	0.575	0.577	0.579	0.575	0.597
Number of districts	290	290	290	290	290

Note: Column (1) represents the estimation using employment share in non-manufacturing industry, while column (2) represents employment share in manufacturing industry. Accordingly, columns (3) to (5) represent the sector in market services 1: trade and transport; market services 2: finance; and non-market services, respectively. The significance of the estimation is shown as *, ** and ***, indicating that the significance level is at 10%, 5% and 1%, respectively.

Source: Authors’ estimates.

Table 2. Regression results with Gini indicator as dependent variable, with control variables.

Variables	Gini coefficient
	(1)	(2)	(3)	(4)	(5)
	Non-manufacturing	Manufacturing	Trade/transport	Finance	Other services
Employment share	0.0912	0.0954**	0.039	0.578***	0.231***
	(0.0593)	(0.0386)	(0.0471)	(0.137)	(0.0455)
Squared employment share	−0.00508**	−0.00145*	−0.000708	−0.06***	−0.004***
	(0.00212)	(0.000858)	(0.00072)	(0.0161)	(0.000953)
Pre-AFC (1992–97) dummy interaction with  …
Employment share	−0.0835	−0.115**	−0.104*	−0.17	−0.161***
	(0.0738)	(0.0475)	(0.054)	(0.267)	(0.0537)
Squared employment share	0.00577**	0.00188	0.00170*	0.039	0.00337***
	(0.00258)	(0.00138)	(0.00102)	(0.0524)	(0.00115)
During AFC (1998–2000) dummy interaction with  …
Employment share	−0.21	−0.018	−0.0779	−0.0818	−0.262***
	(0.139)	(0.0726)	(0.1)	(0.261)	(0.0931)
Squared employment share	0.0120*	−0.000275	0.00125	0.0408	0.00651***
	(0.00651)	(0.00199)	(0.00169)	(0.0408)	(0.00222)
Pre-AFC (1992–97) dummy	6.218***	7.535***	7.628***	8.139***	8.389***
	(1.567)	(1.499)	(1.43)	(1.468)	(1.389)
During AFC (1998−2000) dummy	−4.247***	−3.755***	−4.447***	−3.628***	−4.256***
	(0.724)	(0.667)	(0.587)	(1.087)	(0.548)
Expenditure per capita	8.081***	8.325***	8.302***	8.253***	8.974***
	(0.699)	(0.662)	(0.645)	(0.663)	(0.639)
Years of schooling	−0.479**	−0.409**	−0.441**	−0.370**	−0.398**
	(0.200)	(0.199)	(0.201)	(0.188)	(0.175)
Rate of urbanization	−0.00842*	−0.00527	−0.00747	−0.00555	−0.00573
	(0.00484)	(0.00473)	(0.00472)	(0.00486)	(0.00490)
Total population	0.0923	0.215	0.210	0.0554	0.0671
	(0.305)	(0.329)	(0.313)	(0.300)	(0.322)
Electricity coverage	0.00166	−0.00206	−0.000847	−0.00390	−0.00580
	(0.00943)	(0.00942)	(0.00952)	(0.00886)	(0.0116)
Piped-water coverage	0.0192**	0.0190**	0.0202**	0.0210**	0.0173**
	(0.00802)	(0.00807)	(0.00821)	(0.00819)	(0.00847)
Good sanitation coverage	−0.00509	0.000173	−0.00378	−0.00310	−0.00653
	(0.00647)	(0.00623)	(0.00649)	(0.00639)	(0.00616)
District fixed effect	Yes	Yes	Yes	Yes	Yes
Year effect	Yes	Yes	Yes	Yes	Yes
Constant	−71.74***	−77.12***	−76.69***	−76.37***	−85.73***
	(10.27)	(9.663)	(9.567)	(9.627)	(9.157)
Observations	7351	7334	7326	7352	6832
R^2	0.575	0.577	0.579	0.575	0.597
Number of districts	290	290	290	290	290

Source: Authors’ estimates.

Table 3. Regression results with Gini indicator as dependent variable, without control variables.

Sector	Effect on inequality			Turning point
	1992–97	1998–2000	2001–17	1992–97	1998–2000	2001–17
	Pre-AFC	AFC	Post-AFC	Pre-AFC	AFC	Post-AFC
Non-manufacturing industry	None	None	None	None	None	None
Manufacturing industry	Negative	Positive	Positive	Yes	None	Yes
Market service: trade/transport	Negative	None	None	Yes	None	None
Market service: finance	Positive	Positive	Positive	None	None	Yes
Non-market services	Positive	Negative	Positive	Yes	Yes	Yes

Source: Authors’ estimates.

Anand, S., & Kanbur, S. M. R. (1993). The Kuznets process and the inequality—development relationship. Journal of Development Economics, 40(1), 25–52. https://doi.org/https://doi.org/10.1016/0304-3878(93)90103-t

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World Bank, J. (2019). GDP per capita (current US$), World Development Indicators. The World Bank. Group.Retrived January 31, 2019, from https://data.worldbank.org/indicator/NY.GDP.PCAP.CD

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DATA AVAILABILITY STATEMENT

The data that support the findings of this study are available from Arief Anshory Yusuf upon request.