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

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  • Daniel Suryadarma

    (The SMERU Research Institute)

  • 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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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Development Economics Working Papers with number 21914.

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Date of creation: Apr 2007
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Handle: RePEc:eab:develo:21914

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Related research

Keywords: private sector; investment; government expenditure; poverty reduction; Indonesia;

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  1. Theo S Eicher & Cecilia Garcia Penalosa, . "Inequality and Growth," Discussion Papers in Economics at the University of Washington 0083, Department of Economics at the University of Washington.
  2. 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.
  3. Rana Hasan & M. G. Quibria, 2004. "Industry Matters for Poverty: A Critique of Agricultural Fundamentalism," Kyklos, Wiley Blackwell, vol. 57(2), pages 253-264, 05.
  4. Hill,Hal, 2000. "The Indonesian Economy," Cambridge Books, Cambridge University Press, number 9780521663670, April.
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