Can Education Reduce Inequality? Unraveling Indonesia’s Human Development Paradox

This research assessed the impact of education on poverty and economic inequality of Indonesia under the Vector Error Correction Model (VECM) method using data from 2018-2024. The analysis is based on relevant variables such as the Gross Enrollment Ratio (GER), Net Enrollment Ratio (NER), Human Development Index (HDI), Poverty Gap Index (PGI), and Gini Ratio (GR). The findings show that poverty (PGI) is a significant hindrance to educational participation in the longer run (coefficient: -38.93), while income inequality (GR) is positively related (coefficient: 3.85). Impulse response analysis suggests that the policy intervention exerts a positive impact on education in the short run, even though the impact usually declines or even becomes negative in the long run. Variance decomposition shows that the contribution of PGI to the variance of GER increases to 9.3% over period five, and concludes that universal education access alone is not enough to reduce economic inequality. This paper proposes aggregate policy interventions such as: (1) improving the quality of education in lagging regions, (2) poverty reduction through education policy, and (3) corrective policies to balance regional disparities. The policy implications also underscore the key need to align education policy with poverty alleviation and poverty alleviation plans.