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The Economic Crisis and Regional Income Inequality in Indonesia

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Abstract

This paper estimates regional income inequality in Indonesia during 1993-1998 using a Theil index based upon district- level GDP and population data. The overall regional income inequality increased significantly over the 1993-1997 period (from 0.262 to 0.287), during which Indonesia achieved an annual average growth rate of more than 7%. According to the two-stage nested inequality decomposition analysis, the increase is due mostly to the increase in the within-province inequality component, especially in the provinces of Riau, Jakarta, West Java, and East Java. In 1997, the within-province inequality component accounted for about a half of overall regional income inequality. In terms of per capita GDP, the economic crisis caused the Indonesian economy to revert to the 1995 level. The impact was, however, very uneven across provinces and districts. The overall regional income inequality declined to 0.266 in 1998, which corresponded to the level prevailing in 1993-94. Contrary to the 1993-1997 period, about three-quarters of the decline was due to the decrease in the between-province inequality component, in which the Java-Bali region played a prominent role through a significant decrease in its between-province inequality. The economic crisis appears to have been a crisis afflicting urban Java and urban Sumatra.

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  • Takahiro Akita & Armida S. Alisjahbana, 2001. "The Economic Crisis and Regional Income Inequality in Indonesia," Working Papers EMS_2001_06, Research Institute, International University of Japan.
    • Handle: RePEc:iuj:wpaper:ems_2001_06
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    File URL: https://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2001_06.pdf
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    1. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-625, April.
    2. Takahiro AKITA & Rizal Affandi LUKMAN & Yukino YAMADA, 1999. "Inequality In The Distribution Of Household Expenditures In Indonesia: A Theil Decomposition Analysis," The Developing Economies, Institute of Developing Economies, vol. 37(2), pages 197-221, June.
    3. Mookherjee, Dilip & Shorrocks, Anthony F, 1982. "A Decomposition Analysis of the Trend in UK Income Inequality," Economic Journal, Royal Economic Society, vol. 92(368), pages 886-902, December.
    4. Takahiro Akita, 2000. "Decomposing Regional Income Inequality Using Two-Stage Nested Theil Decomposition Method," Working Papers EMS_2000_02, Research Institute, International University of Japan.
    5. Jorge Garcia Garcia & Lana Soelistianingsih, 1998. "Why Do Differences in Provincial Incomes Persist in Indonesia?," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 34(1), pages 95-120.
    6. Bourguignon, Francois, 1979. "Decomposable Income Inequality Measures," Econometrica, Econometric Society, vol. 47(4), pages 901-920, July.
    7. J.S. Uppal & Budiono Sri Handoko, 1986. "Regional Income Disparities in Indonesia," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 34, pages 287-304.
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    Cited by:

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    2. Hal Hill, 2002. "Spatial Disparities in Developing East Asia: a survey," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 16(1), pages 10-35, May.
    3. Takahiro Akita, 2001. "Regional Income Inequality in China: A Two-Stage Nested Inequality Decomposition Analysis," Working Papers EMS_2001_05, Research Institute, International University of Japan.

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