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Dynamics of Financial Development, Economic Growth, and Poverty Alleviation: The Indonesian Experience

Author

Listed:
  • Dewi Sovia

    (Development Planning Board, West Sumatra,Padang, Indonesia)

  • Abd. Majid M. Shabri
  • Aliasuddin

    (Faculty of Economics and Business, Syiah Kuala University,Syiah Kuala, Indonesia)

  • Kassim Salina

    (Institute of Islamic Banking and Finance International Islamic University,Kuala Lumpur, Malaysia)

Abstract

Although the poverty rate in Indonesia has been declining in the last several years, the rate of poverty decline is slowing down. In order to achieve its poverty reduction target within the stipulated time period, the government has stepped up efforts to enhance the contribution of the financial sector towards poverty reduction. This study aims to empirically explore the interlinkages between financial sector development and poverty reduction in Indonesia. Focusing on annual data covering the period from 1980 to 2015, the study adopts the Autoregressive Distributed Lag (ARDL) cointegration approach to examine the long-run relationship between the variables. The study found that there is a long-run relationship between financial development, economic growth, and poverty reduction in Indonesia. It also documented a unidirectional causality running from the financial sector to poverty reduction and a bidirectional causality between economic growth and poverty reduction. Therefore, policies to ensure the conducive growth of the financial sector would go a long way in promoting the economy, creating employment opportunities, and consequently accelerating poverty eradication

Suggested Citation

  • Dewi Sovia & Abd. Majid M. Shabri & Aliasuddin & Kassim Salina, 2018. "Dynamics of Financial Development, Economic Growth, and Poverty Alleviation: The Indonesian Experience," South East European Journal of Economics and Business, Sciendo, vol. 13(1), pages 17-30, June.
    • Handle: RePEc:vrs:seejeb:v:13:y:2018:i:1:p:17-30:n:2
    DOI: 10.2478/jeb-2018-0002
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