The determinants of regional poverty in Indonesia 1984-2002

The objective of this thesis is to examine the determinants of regional poverty and of poverty decline in Indonesia over the past 18 years (1984-2002). The thesis utilises a consistent provincial dataset for selected indicators of 26 provinces collected from 1984-2002. This thesis begins with an analysis of the growth elasticity of poverty across different growth episodes: (i) the first period of liberalisation (1984-1990); (ii) the second period liberalisation (1990-1996); and (iii) the recovery period (1999- 2002). The findings show that the growth elasticity of poverty was the strongest during the second period of liberalisation, and that there was a possible lag of impact of liberalisation policies on poverty. The analysis then examines the growth elasticity of poverty across groups of provinces. It is found that growth elasticity of poverty was high in Java-Bali, thereby confirming that better infrastructure and human capital enable a greater transmission of growth impact to poverty reduction. In contrast, the growth elasticity of poverty was low both in the isolated provinces of Nusa Tenggara and in the resource rich provinces. For the resource rich provinces, this finding is attributed to the fact that mining, oil and gas based growth have a low impact on poverty since growth is likely to be less labour intensive. In addition, most of the revenue from growth went back to the central government rather than to the producing provinces prior to the 2001 decentralisation. Then other determinants of poverty in addition to growth are analysed: (i) natural resources, (ii) openness, (iii) human capital, (iv) inequality, and (v) infrastructure. A special focus is given to the role of two new determinants which are usually ignored in the literature, which are the role of recent interprovincial migration (assisted and non-assisted in-migration and out-migration) and also the intergovernmental transfers of the Regional Development Grants in 1984-2002. Both the direct channel to poverty and the indirect channel through growth and then associated with poverty are investigated. Through regression analysis, it is found that interprovincial migration only affects regional poverty indirectly through economic growth. Non-assisted in-migration and out-migration are growth enhancing strategies, but this is not true for the assisted in-migration (transmigration). In contrast, surprisingly, intergovernmental transfers are neither growth -enhancing nor poverty reducing. On the role of other determinants, only growth, low inequality and infrastructure are found to be direct poverty reduction strategies in Indonesia