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Revisiting the Impact of Consumption Growth and Inequality on Poverty in Indonesia during Decentralisation

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  • Riyana Miranti
  • Alan Duncan
  • Rebecca Cassells

Abstract

This article analyses the consumption growth elasticity and inequality elasticity of poverty in Indonesia, with a particular focus on the decentralisation period. Using provincial panel data, we show that the effectiveness of growth in alleviating poverty across provinces was greater during decentralisation-that is, between 2002 and 2010-than at any other point since 1984. The growth elasticity of poverty since 2002 is estimated to have been -2.46, which means that a 10% increase in average consumption per capita would have reduced the poverty rate by almost 25%. However, we also find that rising income inequality negated a quarter to a third of the 5.7-percentage-point reduction in the headcount poverty rate. This increasing inequality has contributed to a lower level of pro-poor growth than that maintained in Indonesia before decentralisation.

Suggested Citation

  • Riyana Miranti & Alan Duncan & Rebecca Cassells, 2014. "Revisiting the Impact of Consumption Growth and Inequality on Poverty in Indonesia during Decentralisation," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 50(3), pages 461-482, December.
  • Handle: RePEc:taf:bindes:v:50:y:2014:i:3:p:461-482 DOI: 10.1080/00074918.2014.980377
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    1. Jean O. Lanjouw & Philip I. Levy, 2002. "Untitled: A Study of Formal and Informal Property Rights in Urban Ecuador," Economic Journal, Royal Economic Society, vol. 112(482), pages 986-1019, October.
    2. Quy-Toan Do & Lakshmi Iyer, 2008. "Land Titling and Rural Transition in Vietnam," Economic Development and Cultural Change, University of Chicago Press, vol. 56, pages 531-579.
    3. Boucher, Stephen R. & Guirkinger, Catherine & Trivelli, Carolina, 2005. "Direct elicitation of credit constraints: Conceptual and practical issues with an empirical application," 2005 Annual meeting, July 24-27, Providence, RI 19272, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Kochar, Anjini, 1997. "An empirical investigation of rationing constraints in rural credit markets in India," Journal of Development Economics, Elsevier, pages 339-371.
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