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A Reassessment of Inequality and Its Role in Poverty Reduction in Indonesia

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  • Daniel Suryadarma

    (SMERU)

  • Rima Prama Artha
  • Asep Suryahadi
  • Sudarno Sumarto

Abstract

This study provides an overview of inequality in Indonesia for the period of 1984 to 2002 using several widely used measurements of inequality. Firstly, unlike previous studies, our paper uses real consumption expenditure that takes into account the high regional price disparity across regions in Indonesia. Secondly, we found that, although during the crisis all measures indicate a decrease in inequality, it actually increased for those below the poverty line. Finally, this study also provides an estimation of distribution corrected growth elasticity of poverty for Indonesia. This proves to be an important explanation for the fact that the poverty rate decreased very rapidly between 1999 and 2002 : because inequality during the peak of the economic crisis in 1999 was at its lowest level in 15 years.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Development Economics Working Papers with number 22543.

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Date of creation: Jan 2005
Date of revision:
Handle: RePEc:eab:develo:22543

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Related research

Keywords: Inequality; real consumption expenditure; regional price disparity; growth elasticity of poverty; economic crisis; Indonesia;

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References

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  1. Mª Casilda Lasso de la Vega & Ana Marta Urrutia, 2003. "A new factorial decomposition for the atkinson measure," Economics Bulletin, AccessEcon, vol. 4(29), pages 1-12.
  2. Emmanuel Skoufias & Asep Suryahadi, 2000. "Changes in Household Welfare, Poverty and Inequality During the Crisis," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 36(2), pages 97-114.
  3. Pradhan, Menno & Suryahadi, Asep & Sumarto, Sudarno & Pritchett, Lant, 2000. "Measurements of poverty in Indonesia - 1996, 1999, and beyond," Policy Research Working Paper Series 2438, The World Bank.
  4. James R. Hines Jr. & Hilary W. Hoynes & Alan B. Krueger, 2001. "Another Look at Whether a Rising Tide Lifts All Boats," NBER Working Papers 8412, National Bureau of Economic Research, Inc.
  5. Dirk Kreuger & Fabrizio Perri, 2002. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory," Working Papers 02-15, New York University, Leonard N. Stern School of Business, Department of Economics.
  6. Stéphane Mussard & Michel Terraza & Françoise Seyte, 2003. "Decomposition of Gini and the generalized entropy inequality measures," Economics Bulletin, AccessEcon, vol. 4(7), pages 1-6.
  7. Takahiro Akita, 2002. "Income Inequality in Indonesia," Working Papers EMS_2002_02, Research Institute, International University of Japan.
  8. James A. Levinsohn & Steven T. Berry & Jed Friedman, 2003. "Impacts of the Indonesian Economic Crisis.Price Changes and the Poor," NBER Chapters, in: Managing Currency Crises in Emerging Markets, pages 393-428 National Bureau of Economic Research, Inc.
  9. Cecilia Garcia-Penalosa & Eve Caroli & Philippe Aghion, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1615-1660, December.
  10. Louis Kaplow, 2002. "Why Measure Inequality?," NBER Working Papers 9342, National Bureau of Economic Research, Inc.
  11. Jenkins, Stephen P. & Van Kerm, Philippe, 2003. "Trends in income inequality, pro-poor income growth and income mobility," IRISS Working Paper Series 2003-11, IRISS at CEPS/INSTEAD.
  12. Richard Blundell & Ian Preston, 1997. "Consumption, inequality and income uncertainty," IFS Working Papers W97/15, Institute for Fiscal Studies.
  13. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
  14. Orazio Attanasio & Erich Battistin & Hidehiko Ichimura, 2004. "What Really Happened to Consumption Inequality in the US?," NBER Working Papers 10338, National Bureau of Economic Research, Inc.
  15. Asep Suryahadi & Wenefrida Widyanti & Sudarno Sumarto, 2003. "Short-term poverty dynamics in rural Indonesia during the economic crisis," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(2), pages 133-144.
  16. Wan, Guanghua, 2002. "Regression-based Inequality Decomposition: Pitfalls and a Solution Procedure," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  17. Asep Suryahadi & Sudarno Sumarto, 2003. "Poverty and Vulnerability in Indonesia Before and After the Economic Crisis," Asian Economic Journal, East Asian Economic Association, vol. 17(1), pages 45-64, 03.
  18. Martin Feldstein, 1998. "Income Inequality and Poverty," NBER Working Papers 6770, National Bureau of Economic Research, Inc.
  19. Asep Suryahadi & Sudarno Sumarto & Lant Pritchett, 2003. "Evolution of Poverty During the Crisis in Indonesia," Asian Economic Journal, East Asian Economic Association, vol. 17(3), pages 221-241, 09.
  20. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
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  23. Takahiro Akita, 2002. "Regional Income Inequality In Indonesia And The Initial Impact Of The Economic Crisis," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 38(2), pages 201-222.
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Citations

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Cited by:
  1. Daniel Suryadarma & Wenefrida Widyanti & Asep Suryahadi & Sudarno Sumarto, 2006. "From Access to Income : Regional and Ethnic Inequality in Indonesia," Development Economics Working Papers 22547, East Asian Bureau of Economic Research.
  2. World Bank, 2006. "Making the New Indonesia Work for the Poor," World Bank Other Operational Studies 8172, The World Bank.

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