Poverty and inequality in Indonesia and Southeast Asia: Measurement, impact and policies

UNPAD’s SDGs Center and SMERU Research Institute are co-organizing a special session at the 15th Convention of the East Asian Economic Association to be held in Bandung (EAEA2016), Indonesia, on 5-6 November 2016. The session titled “Poverty and inequality in Indonesia and Southeast Asia: Measurement, impact and policies” will feature four speakers. They are Prof. Anne Booth of SOAS, UK, Dr. Asep Suryahadi of SMERU, and Prof. Armida Alisjahbana and Dr. Arief Anshory Yusuf, both are from UNPAD SDGs Center.

The objective of special session is discuss the current status of poverty and inequality in Indonesia by presenting recent research regarding the poverty and inequality measurement issues, both in terms of data as well as the development of indicators beyond traditional monetary poverty. Another objective is to look at recent empirical studies on the cost of inequality, particulary on economic growth and look at examples of how poverty reduction policies can be approached through gender empowerment.

In the first paper, Prof. Anne Booth will present her paper on “Poverty and Income Distribution in Southeast Asia: Issues in Measurement”. The paper addresses several questions relating to the measurement of poverty and distribution in Southeast Asia, with particular reference to Indonesia. First, it examines the criticisms which have been made of household income and expenditure surveys (HIES) in both Indonesia and other countries in the region. Most countries in Southeast Asia carry out these surveys; in several countries, including Indonesia, they have been held at regular intervals since the 1960s. But they have come under considerable critical scrutiny as evidence mounts of under-reporting, especially among richer households. Such criticisms are important because these surveys have been used by both national governments and international agencies to estimate both poverty and income distribution. A second aim of the paper will be to compare and contrast how poverty is measured in different countries, paying particular attention to the construction of poverty lines. A third aim of the paper is to assess how useful data from HIES are for estimating inequality indicators. Does under-reporting by richer households mean that HIES data should not be used to compute inequality estimates? What other data sources are available?

The second paper titled “How inclusive has growth been in Indonesia?” will be presented by Dr. Arief Anshor Yusuf. This paper consider different approaches to assessing inclusive growth in Indonesia from 1994 to the present day. We discuss the growth incidence curve, changes in the poverty headcount by the national monetary/consumption poverty line, and changes in inequality indicators. We then develop a measure of inclusive growth based on multidimensional poverty that expands the lens to include not only education, health and household assets, but employment too. We discuss trends in Indonesia across the three approaches for each administration and provide a baseline for assessing the new adminstration. We note that the reduction of poverty by the national poverty line is matched by the impressive reduction in education and health poverty and expansion of household assets. However, some basic problems remain in terms of school completion and vaccination coverage and progress on employment related poverty in our assessment of inclusive growth is minimal in the last decade. We argue the use of multidimensional poverty to assess the inclusivity of growth draws attention to the successes of administrations in providing public goods and also the enormous remaining challenge of providing sufficient employment opportunities.

In the third paper, Dr. Asep Suryahadi will present a paper titled “The Impact of Increasing Inequality on Economic Growth: Evidence from Indonesia’s Recent Experience”.  This paper provides empirical evidence of the impact of increasing inequality on economic growth based on the experience of Indonesia. The country has experienced a significant and continuing increase in inequality since early 2000s. Using district level data for the period of 2000-2012, this study is able to overcome the empirical analysis problems faced by multicountry studies. Overall, the findings indicate that the effect of inequality on growth is nonlinear in the form of inverted U-shape. Similarly, horizontal inequality across ethnic groups is also found to have nonlinear inverted U-shape relationship with growth. These findings suggest that initially inequality may not be harmful for growth, however, after reaching a threshold, it will have an adverse impact. This implies that it is important to put in place policies to address increasing inequality to anticipate its harmful impact.

Las paper will be presented by Prof. Armida Alisjahbana titled “Poverty alleviation through women empowerment: evidence from Indonesia” This paper puts special attention to female household head or female spouse as the key agent in household poverty eradication. An Ordered Probit Panel Analysis using the Indonesian Family Life Survey (IFLS) 2007 and 2014 is utilized to capture the determinants of household poverty status during the two periods. The dependent variables are household poverty status from year 2007 to 2014, i.e. stay poor, better off, or worse off.  Our main estimator is Women HHH or Women Spouse Education as proxy of Women Human Capital. The model is controlled by variables representing household socioeconomic characteristics, district’s economic characteristics, poverty related government programs, community participation and community facilities. By performing interaction between women human capital level with several variables expected to bring household out of poverty, it is found that women’s human capital has increased the probability of household’s in escaping poverty. The results confirm that efforts to alleviate poverty must be integrated with women human capital improvement. Several policy implications related to women human capital improvement and empowerement toegther with poverty allevation program follow.

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