Revisiting Growth and Poverty in Indonesia:

Transcription

1 Revisiting Growth and Poverty in ndonesia: The Causes of Declining Pace of Poverty Reduction in the Post Asian Financial Crisis Period Asep Suryahadi Gracia Hadiwidjaja The SMERU Research nstitute Jakarta ndonesia May 2011

2 Outline. ntroduction. Sectoral Structure of the Economy. Poverty Trend and Profile V. Growth and Poverty Reduction V. Conclusion and mplication 2

3 . ntroduction Before the 1997/98 Asian financial crisis (AFC), ndonesia experienced high economic growth and rapid reduction in poverty. After AFC, ndonesia has both significantly lower economic growth and slower poverty reduction. This study s objective is to assess possible causes of the slower poverty reduction in post AFC era using the growth-poverty framework. 3

4 . Sectoral Structure of the Economy A. Development Policy. late 1960s mid 1970s: open trade and investment policy.. mid 1970s mid 1980s: inward-looking importsubstitution policy.. mid 1980s late 1990s: export orientation policy and deregulation of domestic economy. V. late 1990s now: remains committed to open economic policy, but returns to protectionism in certain sectors. 4

5 B. Output 5

6 C. Employment 6

7 D. Economic Growth 7

8 %. Poverty Trend and Profile A. Long Term Trend in Poverty Figure 4. The National Poverty Rates in ndonesia, (%) Old standard New standard

9 Back of Envelope Calculation of Changing Pace in Poverty Reduction Pre AFC Post AFC Beginning period poverty rate (%) End period poverty rate (%) Reduction in poverty rate (percent point) Length of period (year) 20 8 Annual average reduction in poverty rate (percent point) Ratio to pre AFC period (%)

10 B. Urban and Rural Poverty 10

11 C. Sectoral Profile of Poverty 11

12 V. Growth and Poverty Reduction A. The Growth-Poverty Model The basic model to estimate the impact of economic growth on poverty (Ravallion and Datt, 1996): dp y ndonesian study (Suryahadi et al., 2009): dp j A U R H A A Uj y Uj H Rj y Rj U S R H Uj H S Rj y Uj S y Rj S U H S S Uj y Uj A R H A A Rj y Rj ds j P j m E mj 12

13 Estimation Results of the mpact of Sectoral Economic Growth on Poverty Sectoral Rural Poverty Urban Poverty GDP Growth Source: Suryahadi et al. (2009) Coefficient z-values Coefficient z-values Urban Agriculture Urban ndustry Urban Services Rural Agriculture Rural ndustry Rural Services

14 B. Possible Causes of Slower Poverty Reduction Assuming the estimated s are the true *s, then there are two possible causes of the slower poverty reduction: Changes in the levels of sectoral economic growth Changes in sectoral GDP composition How do we test these possible causes? 14

15 B.1. Changes in the levels of sectoral economic growth Fix the levels of sectoral economic growth (at the pre AFC levels), let the sectoral GDP shares vary (the actual shares): 15 mj m j j S Rj S Rj S R Rj Rj R A Rj A Rj A R S Uj S Uj S U Uj Uj U A Uj A Uj A U j E P ds y H y H y H y H y H y H dp * * * * * *

16 Urban Agriculture Average Sectoral GDP Share in ndonesia Pre and Post AFC Urban ndustry Urban Services Rural Agriculture Rural ndustry Rural Services Average Annual Sectoral Economic Growth in ndonesia Pre and Post AFC (%/year) Urban Agriculture Urban ndustry Urban Services Rural Agriculture Rural ndustry Rural Services

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19 B. 2. Changes in sectoral GDP composition Fix the sectoral GDP shares (at the pre AFC shares), let the levels of sectoral economic growth vary (the actual growth levels): 19 mj m j j S Rj S Rj S R Rj Rj R A Rj A Rj A R S Uj S Uj S U Uj Uj U A Uj A Uj A U j E P ds y H y H y H y H y H y H dp * * * * * *

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22 Annual Reduction in Poverty Rate (% point) Rural Poverty Urban Poverty Actual Pre AFC Post AFC: - Actual Fixed Economic Growth Fixed GDP Share Contribution to Slower Poverty Reduction (%): - Changes in Economic Growth Changes in GDP Share

23 C. Growth Elasticity of Poverty Rural 23

24 C. Growth Elasticity of Poverty Urban 24

25 D. Sectoral Contribution to Poverty Reduction Rural 25

26 D. Sectoral Contribution to Poverty Reduction Urban 26

27 V. Conclusion and mplication Changes in the levels of sectoral economic growth are a significant factor contributing to slower poverty reduction in post AFC era in both rural and urban areas. Changes in sectoral GDP composition contribute significantly to the slower poverty reduction but only for rural areas. The power of each percent of economic growth in reducing poverty i.e. the growth elasticity of poverty did not change much between pre and post AFC. Services growth is the largest contributor to poverty reduction in both rural and urban areas, agricultural growth is only important for rural poverty, while industrial growth has become irrelevant for poverty reduction. Caveat: need to investigate whether the coefficients (s) have changed in the post AFC era. 27

28 Thank You