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The Impact of Private Sector Growth on Poverty Reduction : Evidence from Indonesia

Author

Listed:
  • Daniel Suryadarma

    (The SMERU Research Institute)

  • Asep Suryahadi

Abstract

This paper assesses the effect of public and private sector growth on poverty in Indonesia. We use fixed capital formation growth as the proxy for the private sector and growth in government spending as the indicator of the public sector. We find that growth in both sectors significantly reduces poverty; moreover, they have the same elasticity. Therefore, growth in both public and private sector spending will reduce poverty twice as fast as just relying on public spending. The implication is that it is crucial for governments to improve the business climate in their countries so that the private sector will be able to flourish and in the end expedite poverty reduction.

Suggested Citation

  • Daniel Suryadarma & Asep Suryahadi, 2007. "The Impact of Private Sector Growth on Poverty Reduction : Evidence from Indonesia," Development Economics Working Papers 21914, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:develo:21914
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    File URL: http://www.eaber.org/node/21914
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    References listed on IDEAS

    as
    1. Theo S Eicher & Cecilia Garcia Penalosa, "undated". "Inequality and Growth," Working Papers 0083, University of Washington, Department of Economics.
    2. Rana Hasan & M. G. Quibria, 2004. "Industry Matters for Poverty: A Critique of Agricultural Fundamentalism," Kyklos, Wiley Blackwell, vol. 57(2), pages 253-264, May.
    3. Kraay, Aart, 2006. "When is growth pro-poor? Evidence from a panel of countries," Journal of Development Economics, Elsevier, vol. 80(1), pages 198-227, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    private sector; investment; government expenditure; poverty reduction; Indonesia;

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • O49 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Other

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