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External Shocks and Poverty: How Recession in Europe, Japan, and China Affects the Indonesian Poor

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  • Arief Anshory Yusuf

    (Universitas Padjadjaran)

Abstract

This paper analyzes the effect of a recession in Europe, Japan, and China on the poverty in Indonesia. We use the GTAP model and the INDONESIA-E3 model to examine the impact of a 2 percent GDP decline in these three countries on the poverty in Indonesia. The results suggest a negative impact on Indonesia�s GDP, mainly through the trade-linkages but with a small magnitude. The main reason for this finding has to do with the low dependency of Indonesia on international trade. The shock also slightly increases the poverty in Indonesia with a small magnitude. Across the household types, the negative effects of these recession goes mainly to higher income households since large part of their incomes comes from the capital and skill-intensive sectors. The poor household types are likely to be the first to lose their jobs in the event of this recession, since they are less skilled. These findings urge the Indonesian government to lunch employment programs to ensure the employment continuity for these unskilled laborers in the anticipation of a global recession particularly originating from these three countries.

Suggested Citation

  • Arief Anshory Yusuf, 2015. "External Shocks and Poverty: How Recession in Europe, Japan, and China Affects the Indonesian Poor," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 18(2), pages 207-228, July.
    • Handle: RePEc:idn:journl:v:18:y:2015:i:2d:p:207-228
    DOI: https://doi.org/10.21098/bemp.v18i2.523
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    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • F15 - International Economics - - Trade - - - Economic Integration

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