Is structural transformation-led economic growth immiserising or inclusive? The case of Indonesia

Kyunghoon Kim, Andy Sumner and Arief Yusuf

Departmental Working Papers from The Australian National University, Arndt-Corden Department of Economics

Abstract: This paper examines the relationship between structural transformation and the inclusivity of growth using the case of Indonesia. In the past two decades, Indonesia has become a service-centred economy; manufacturing sector’s capacity to generate employment and lead productivity growth has deteriorated compared to during the two decades prior to the Asian financial crisis. A multidimensional analysis of Indonesia’s structural transformation shows that productivity growth since the crisis has been higher than the long-term average, driven both by within-sector productivity gains and labour movement to higher productivity sectors. Also, Indonesia has not experienced a rising level of informality that is increasingly a concern for other developing countries going through service-led structural change. We argue thus that structural transformation has offered sustainable opportunities to the Indonesian workers in general. However, Indonesia’s economic growth is unlikely to as dynamic as during the high growth period (1986–1996) if the service sector continues to lead structural transformation. Compared to the industrial subsector, the service subsector with large employment absorptive capacity, has low productivity. Indonesia face challenges of recovering economic dynamism as well as managing the consequences of structural transformation.

Keywords: Indonesia; structural change; inclusive growth; productivity; employment (search for similar items in EconPapers)
JEL-codes: O14 O16 O53 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2018
New Economics Papers: this item is included in nep-dev and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pas:papers:2018-11

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