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A sectoral growth-income inequality nexus in Indonesia

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  • Ivan Gonzalez
  • Budy P Resosudarmo

Abstract

The lack of empirical consensus about the interrelation between growth in different economic sectors and income inequality leads to unclear targeting in policy-making. This paper provides evidence of a causal relationship between economic growth in the manufacturing, agriculture and services sectors and income inequality, measured by an income equality variable, using panel data for Indonesian districts and cities over the period 2000 to 2010. The results from between-effects and instrumental variables regression estimates show a positive impact of both manufacturing and services shares of GDP on income inequality. The share of agriculture in GDP, however, shows a negative impact on with income inequality, implying that growth in agriculture has been more inclusive compared to growth in manufacturing or services. The causal effects are robust to the incorporation of education, employment, government spending, credit or quality of government covariates.

Suggested Citation

  • Ivan Gonzalez & Budy P Resosudarmo, 2016. "A sectoral growth-income inequality nexus in Indonesia," Departmental Working Papers 2016-15, The Australian National University, Arndt-Corden Department of Economics.
    • Handle: RePEc:pas:papers:2016-15
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    Cited by:

    1. Falentina, Anna T. & Resosudarmo, Budy P., 2019. "The impact of blackouts on the performance of micro and small enterprises: Evidence from Indonesia," World Development, Elsevier, vol. 124(C), pages 1-1.

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    More about this item

    Keywords

    economic growth; income inequality; sectoral analysis; development economics;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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