Pro-poor growth : does it work in Indonesia?

The main purpose of this study is to examine whether economic growth in Indonesia is categorised as pro-poor growth. It will be analysed through how economic growth affects poverty. To address this research, we will conduct the study using panel data. It consists of province-level data from 2004 - 2010 to estimate an econometric model that allows us to know the impact of economic growth, inequality, government spending, and fiscal capability on poverty rate. Therefore, the set of control variables consists of the Gini coefficient, per capita Gross Regional Domestic Product (GRDP), government spending, and own income resources. The estimated results of this study have important policy implications. First, the finding shows that economic growth is good to enhance poverty reduction; government therefore should consider to rising up economic growth benefiting for the poor. In addition, empirical evidence suggests that the headcount ratio in Indonesia is more responsive on economic growth than on income distribution. Second, the effect of government expenditures varies for different type of spending. Government spending on education and health has significant impact on poverty alleviation through reduced income inequality; while public expenditure on social protection is insignificantly contribute to decrease poverty rate. Finally, the fiscal capability in each province is required to enhance poverty eradication. Further, economic growth is needed to enhance the effectiveness of poverty reduction. Moreover, sustained growth should be accompanied by encouraging in human capital investment to accelerate poverty reduction. In addition, designing and implementing pro poor poverty reduction program should be done to accelerate poverty alleviation. Finally, this result suggests that economic growth during period 2004-2010 in Indonesia can be concluded as pro-poor growth. Relevance to Development Studies Poverty reduction and economic growth cannot be separated from development goals. This paper attempts to investigate the link between the goals of development, which is poverty reduction, and the indicator of development (growth).