A sectoral growth-income inequality nexus in Indonesia

Ivan Gonzalez and Budy Resosudarmo

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

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.

Keywords: economic growth; income inequality; sectoral analysis; development economics (search for similar items in EconPapers)
JEL-codes: I32 O11 O14 O15 O47 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2016
New Economics Papers: this item is included in nep-sea and nep-sog
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Journal Article: A sectoral growth‐income inequality nexus in Indonesia (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pas:papers:2016-15

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