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The Implication of Energy Consumption, Corruption, and Foreign Investment for Sustainability of Income Distribution in Indonesia

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  • Bestari Dwi Handayani

    (Faculty of Economics, Universitas Negeri Semarang, Semarang 50229, Indonesia)

  • Heri Yanto

    (Faculty of Economics, Universitas Negeri Semarang, Semarang 50229, Indonesia)

  • Amin Pujiati

    (Faculty of Economics, Universitas Negeri Semarang, Semarang 50229, Indonesia)

  • Abdul Rahim Ridzuan

    (Faculty of Business and Management, Universiti Teknologi MARA, Melaka Campus, Alor Gajah 78000, Malaysia
    Faculty of Economics and Business, Universitas Negeri Malang, Malang 65145, Indonesia
    Institute for Big Data Analytics and Artificial Intelligence, Institute for Research on Socio Economic Policy, Universiti Teknologi MARA, Shah Alam 40450, Malaysia
    Centre for Economic Development and Policy, Universiti Malaysia Sabah, Kota Kinabalu 88400, Malaysia)

  • J. S. Keshminder

    (Faculty of Business and Management, Universiti Teknologi MARA, Selangor Campus, Bandar Puncak Alam 42300, Malaysia
    Department of Business Administration, World University of Bangladesh, Dhaka 1205, Bangladesh)

  • Mohd Shahidan Shaari

    (Centre of Excellence for Social Innovation & Sustainability (CoESIS), Faculty of Business and Communication, Universiti Malaysia Perlis, Arau 02600, Malaysia)

Abstract

Despite the recent reduction in the poverty rate in Indonesia, income inequality has not shown any improvement. Income inequality, also known as income disparity, has been a prolonged issue in Indonesia and has caused great dissatisfaction among the public. Many of them do not feel an improvement in their wellbeing. Most studies explore these issues based on microeconomics perspectives, and limited studies focus on macroeconomic determinants. Thus, it is imperative to investigate the potential macroeconomic determinants of income inequality in Indonesia, particularly energy consumption (ENC), corruption (COR), foreign direct investment (FDI), and other supporting determinants such as economic growth (GDP), financial development (FD), and CO 2 emissions. Data from 1984 to 2020 were collected and analyzed, employing the autoregressive distributed lag (ARDL) approach. The findings indicate that economic growth, corruption, and FDI can contribute to a smaller gap between the rich and the poor. At the same time, greater CO 2 emissions can intensify income inequality in Indonesia both in the short and long run. Pollution, as captured by CO 2 emissions, can affect the health of the poor. Health problems create difficulties for poor people to work and reduce the probability of earning income, ultimately widening income inequality. FD and energy use, on the other hand, do not influence income distribution in the long and short run. The findings indicate that boosting economic growth and FDI significantly reduce income disparity in Indonesia. Various policy recommendations are suggested in these studies based on the long-run outcomes.

Suggested Citation

  • Bestari Dwi Handayani & Heri Yanto & Amin Pujiati & Abdul Rahim Ridzuan & J. S. Keshminder & Mohd Shahidan Shaari, 2022. "The Implication of Energy Consumption, Corruption, and Foreign Investment for Sustainability of Income Distribution in Indonesia," Sustainability, MDPI, vol. 14(23), pages 1-15, November.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:23:p:15915-:d:987970
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