Exploring the dynamics of Poverty, Inflation, Inequality and Economic Growth in Indonesia

This study examines the dynamic relationship among economic growth, income inequality, inflation, and poverty across 33 Indonesian provinces over 2011-2024 by extending Bourguignon’s Poverty Triangle Model to include inflation as an additional dimension. Using panel data from Statistics Indonesia and applying the Panel Vector Error Correction Model (P-VECM), the analysis is preceded by cross-sectional dependence, CIPS unit root, and Westerlund cointegration tests. The results reveal significant cross-sectional dependence and confirm a long-run equilibrium relationship among the variables. The P-VECM estimates show that, in the long run, economic growth, inequality, and inflation adjust toward equilibrium, whereas poverty exhibits a positive and significant error correction term, indicating divergence from the long-run path. In the short run, income inequality exerts a strong positive effect on inflation, while lagged poverty contributes positively to economic growth. However, poverty does not respond significantly to short-run changes in the other variables, suggesting the relevance of structural factors beyond the estimated system. Impulse response analysis further indicates that the strongest responses arise from own shocks, while cross-variable transmission remains limited. Overall, the conventional poverty-growth-inequality triangle is not fully supported in the Indonesian provincial context. These findings imply that region-specific policies are needed to promote inclusive and sustainable development.