Economic zones and local income inequality: Evidence from Indonesia

Cecília Hornok and Dewa Gede Sidan Raeskyesa

No 2225, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

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.

Keywords: economic zones; place-based policy; income distribution; synthetic control method; Indonesia (search for similar items in EconPapers)
JEL-codes: D31 F63 O15 O25 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-sea and nep-ure
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https://www.econstor.eu/bitstream/10419/260614/1/1807592170.pdf (application/pdf)

Related works:
Journal Article: Economic zones and local income inequality: Evidence from Indonesia (2024)
Working Paper: Economic zones and local income inequality: Evidence from Indonesia (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:2225

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