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The Impact of Private Sector Growth on Poverty Reduction: Evidence from Indonesia

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  • Daniel Suryadarma
  • Asep Suryahadi

Abstract

This paper assesses the effect of public and private sector growth on poverty in Indonesia. We use fixed capital formation growth as the proxy for the private sector and growth in government spending as the indicator of the public sector. We find that growth in both sectors significantly reduces poverty; moreover, they have the same elasticity. Therefore, growth in both public and private sector spending will reduce poverty twice as fast as just relying on public spending. The implication is that it is crucial for governments to improve the business climate in their countries so that the private sector will be able to flourish and in the end expedite poverty reduction.
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Suggested Citation

  • Daniel Suryadarma & Asep Suryahadi, "undated". "The Impact of Private Sector Growth on Poverty Reduction: Evidence from Indonesia," Working Papers 349, Publications Department.
    • Handle: RePEc:agg:wpaper:349
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    References listed on IDEAS

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    1. Theo S Eicher & Cecilia Garcia Penalosa, "undated". "Inequality and Growth," Working Papers 0083, University of Washington, Department of Economics.
    2. Rana Hasan & M. G. Quibria, 2004. "Industry Matters for Poverty: A Critique of Agricultural Fundamentalism," Kyklos, Wiley Blackwell, vol. 57(2), pages 253-264, May.
    3. Hill,Hal, 2000. "The Indonesian Economy," Cambridge Books, Cambridge University Press, number 9780521663670.
    4. Gaurav Datt & Martin Ravallion, 1998. "Why Have Some Indian States Done Better than Others at Reducing Rural Poverty?," Economica, London School of Economics and Political Science, vol. 65(257), pages 17-38, February.
    5. Kraay, Aart, 2006. "When is growth pro-poor? Evidence from a panel of countries," Journal of Development Economics, Elsevier, vol. 80(1), pages 198-227, June.
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    Cited by:

    1. Philippe Le Houérou & Hans Peter Lankes, 2023. "Mobiliser le secteur privé en faveur du développement et du climat dans les pays en développement. Un projet réaliste ? WP323," Working Papers hal-04121255, HAL.
    2. Darius Tirtosuharto, 2022. "The impact of fiscal efficiency on poverty reduction in Indonesia: institutional factor and geographical differences," Journal of Geographical Systems, Springer, vol. 24(1), pages 67-93, January.
    3. Afful, Solomon Luther & Kamasa, Kofi, 2020. "Interest Rate and its Threshold Effect on Private Investment: Evidence from Ghana," African Journal of Economic Review, African Journal of Economic Review, vol. 8(2), July.
    4. Muhammad Suleman & Abdur Rehman & Haroon Javaid, 2020. "Determinants of Private Investment in Pakistan," Journal of Economic Impact, Science Impact Publishers, vol. 2(3), pages 86-92.

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    More about this item

    Keywords

    private sector; investment; government expenditure; poverty reduction; Indonesia;
    All these keywords.

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • O49 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Other

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