Examining Inclusive Growth: The Case of Java Island, Indonesia

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Eddy Juliansyah, Acwin Hendra Saputra, I Gede Agus Ariutama


Indonesia's economic growth indicates positive achievement against poverty reduction. However, there is a tradeoff between economic growth and inequality (gini ratio) which, in fact, is increasing. To solve the trade-off problem, the concept of inclusive growth was developed. This research tries to analyze the measurement and determinants of inclusive growth at regional level; that is for six provinces in Java Island by exploiting Social Mobility Curve (SMC) method. There are two stages performed in this study. First stage is to measure inclusive growths using the social mobility curve method, whereas second stage is to analyze the determinants affecting inclusive growth which includes education, health, unemployment, local government spending, and the number of poor people. Our results indicate that the aggregate economic growth in Java has not achieved perfect inclusive growth. Despite an increase in per capita income (dy) by 48.7% from 2011 to 2015, the value of the equity income index (dω) decreased by 4%. This indicates that economic growth has not been much in favor of poor communities as pro-poor growth. Furthermore, at the provincial level, the result reveals that only two provinces, West Java and Daerah Istimewa Yogyakarta, achieve absolute growth/absolute inclusive growth, while the rest have not achieved absolute/perfect growth.

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