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International Commodity Prices and Inequality in Indonesia

Listed author(s):
  • Arief Anshory Yusuf

    ()

    (Department of Economics, Padjadjaran University)

There has been an increasing attention to the recent increase in Indonesian inequality. From 2009 to 2011, Gini coefficient increased from 0.37 to 0.41, the highest ever recorded in Indonesian history. During the same period, the world prices of many Indonesian export commodities doubled. As those sectors, particularly mining, is highly capital intensive and skilled-labor intensive, this may increase the returns to factors more intensively used in those sectors, and thus has a tendency to increase inequality. Using the INDONESIA-E3 model, a Computable General Equilibrium model of an Indonesian economy, this paper investigates to what extent the increase in the world prices of Indonesian main commodity export (estate crops and mining) contributes to the increase in inequality in Indonesia. The impact of increases in the prices of 8 main Indonesian export commodities was simulated during the period of 2009-2011. The result suggests that they indeed increase inequality, yet with a magnitude of only a quarter of the increase in Gini coefficient observed during the period of 2009 to 2011. The dominant factors behind the increase in Gini coefficient can be traced to the increase in the world price of mining commodities rather than estate crops. The effect of increases in the world prices of rubber, palm oil, coffee, and tea is negligible and poverty-reducing in rural areas. On the other hand, the effect of the increase in the world price of coal, oil, gas, and metals generates a significant increase in inequality. These findings suggest that, from the perspective of equality, restricting export of estate crops commodities in the midst of the commodity booms will not be favorable to the poverty reduction agenda, particularly in rural areas.

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File URL: http://ceds.feb.unpad.ac.id/wopeds/201409.pdf
File Function: First version, 2014
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Paper provided by Department of Economics, Padjadjaran University in its series Working Papers in Economics and Development Studies (WoPEDS) with number 201409.

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Length: 32 pages
Date of creation: Jun 2014
Date of revision: Jun 2014
Handle: RePEc:unp:wpaper:201409
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  1. Aswicahyono, Haryo & Narjok, Dionisius, 2011. "Indonesian Industrialization," WIDER Working Paper Series 053, World Institute for Development Economic Research (UNU-WIDER).
  2. Arief Anshory Yusuf, 2006. "Constructing Indonesian Social Accounting Matrix for Distributional Analysis in the CGE Modelling Framework," Working Papers in Economics and Development Studies (WoPEDS) 200604, Department of Economics, Padjadjaran University, revised Nov 2006.
  3. Arief Anshory Yusuf, 2006. "On the re-assessment of inequality in Indonesia: household survey or national account?," Working Papers in Economics and Development Studies (WoPEDS) 200605, Department of Economics, Padjadjaran University, revised Aug 2006.
  4. Peter Warr & Arief Anshory Yusuf, 2011. "Reducing Indonesia’s deforestation‐based greenhouse gas emissions," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 55(3), pages 297-321, 07.
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