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Economic zones and local income inequality: Evidence from Indonesia

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  • Hornok, Cecília
  • Raeskyesa, Dewa Gede Sidan

Abstract

Economic zones can be powerful drivers of economic growth in developing countries. However, less is known about their distributional impact on the local society. This paper provides empirical evidence from Indonesian provinces on the relationship between economic zones and within-province income inequality. Estimates from panel regressions and synthetic control case studies suggest that this relationship is positive overall. The estimated rise in income inequality after a zone opens is relatively small on average and may be short-lived. However, the average estimate masks large regional differences, which suggests that the inequality implications of economic zone policies depend on local conditions. One explanation for the rise in inequality is that the unskilled population benefits disproportionately less from the policy. As a remedy, we propose education and training programs that target the poor and unskilled and in which companies also actively participate.

Suggested Citation

  • Hornok, Cecília & Raeskyesa, Dewa Gede Sidan, 2022. "Economic zones and local income inequality: Evidence from Indonesia," Kiel Working Papers 2225, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:2225
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    References listed on IDEAS

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    More about this item

    Keywords

    economic zones; place-based policy; income distribution; synthetic control method; Indonesia;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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