Letters in Spatial and Resource Sciences

, Volume 7, Issue 3, pp 133–147 | Cite as

Urbanization and expenditure inequality in Indonesia: testing the Kuznets hypothesis with provincial panel data

  • Perdamen Sagala
  • Takahiro Akita
  • Arief Anshori Yusuf
Original Paper

Abstract

Focusing on Indonesia, this study analyzes the relationship between inequality and the process of urbanization. It performs a panel data regression analysis to test the Kuznets inverted-U hypothesis for urbanization based on a provincial panel data set of 33 provinces over the period 2000–2009, constructed by using the core National Socio-economic Survey (core Susenas). Our results support the Kuznets inverted-U hypothesis, whether the Gini coefficient or the Theil indices are used as a measure of inequality. According to our estimates, expenditure inequality would reach the peak at an urbanization rate of around 46–50 %. Since the 2010 urbanization rate is 50 %, this indicates that expenditure inequality has already attained the peak value. Thus, further urbanization would decrease expenditure inequality, but all other things being equal.

Keywords

Urbanization Expenditure inequality Kuznets hypothesis Panel data regression Indonesia 

JEL Classification

O18 R11 

References

  1. Ahluwaria, M.S.: Inequality, poverty and development. J. Dev. Econ. 3(4), 307–342 (1976a)CrossRefGoogle Scholar
  2. Ahluwaria, M.S.: Income distribution and development: some stylized facts. Am. Econ. Rev. 66(2), 128–135 (1976b)Google Scholar
  3. Akita, T., Lukman, R.A.: Spatial patterns of expenditure inequalities in Indonesia: 1987, 1990, and 1993. Bull. Indones. Econ. Stud. 35, 65–88 (1999)CrossRefGoogle Scholar
  4. Akita, T., Lukman, R.A., Yamada, Y.: Inequality in the distribution of household expenditures in Indonesia: a Theil decomposition analysis. Dev. Econ. 37(2), 197–221 (1999)CrossRefGoogle Scholar
  5. Akita, T., Miyata, S.: Urbanization, educational expansion, and expenditure inequality in Indonesia in 1996, 1999, and 2002. J. Asia Pac. Econ. 13, 147–167 (2008)CrossRefGoogle Scholar
  6. Akita, T., Alit, P.: Urban inequality in Indonesia. In: Handra, H., Resosudarmo, B.P., Yusuf, A.A., Elfindri and Yonnedi, E. (eds.) Regional Development and Finances: Challenges for Expanding and Financing Public Services. Andalas University Press, Padang (2012)Google Scholar
  7. Anand, S.: Inequality and Poverty in Malaysia: Measurement and Decomposition. World Bank Research Publication, Oxford University Press, New York (1983)Google Scholar
  8. Anand, S., Kanbur, S.M.R.: The Kuznets process and the inequality-development relationship. J. Dev. Econ. 40(1), 25–52 (1993)CrossRefGoogle Scholar
  9. Angeles, L.: An alternative test of Kuznets’ hypothesis. J. Econ. Inequal. 8(4), 463–473 (2010)CrossRefGoogle Scholar
  10. Asian Development Bank (ADB): Key Indicators for Asia and the Pacific 2013. Asian Development Bank, Philippines (2013)Google Scholar
  11. Asra, A.: Poverty and inequality in Indonesia: estimates, decomposition and key issues. J. Asia Pac. Econ. 5, 91–111 (2000)Google Scholar
  12. Cameron, L.: Growth with or without equity? The distributional impact of Indonesian development. Asian Pac. Econ. Lit. 16(2), 1–17 (2002)CrossRefGoogle Scholar
  13. Campano, F., Salvatore, D.: Economic development, income inequality and Kuznets’ U-shaped hypothesis. J. Policy Modeling 10(2), 265–280 (1988)CrossRefGoogle Scholar
  14. Central Bureau of Statistics (CBS): Core National Socio-economic Survey. Central Bureau of Statistics, Jakarta (various issues)Google Scholar
  15. Central Bureau of Statistics (CBS): Gross Regional Domestic Product of Provinces in Indonesia by Industrial Origin. Central Bureau of, Statistics, Jakarta (various issues)Google Scholar
  16. Cornwell, K., Anas, T.: Survey of recent developments. Bull. Indones. Econ. Stud. 49(1), 7–33 (2013)CrossRefGoogle Scholar
  17. Deininger, K., Squire, L.: Economic growth and income inequality: reexamining the links. Finance and Development, pp 38–41(1997)Google Scholar
  18. Deininger, K., Squire, L.: New ways of looking at old issues: inequality and growth. J. Dev. Econ. 57(2), 259–287 (1998)CrossRefGoogle Scholar
  19. Eastwood, R., Lipton, M.: Rural and urban income inequality and poverty: does convergence between sectors offset divergence within them? In: Cornia, C.A. (ed.) Inequality, Growth, and Poverty in an Era of Liberalization and Globalization. Oxford University Press, Oxford (2004)Google Scholar
  20. Fields, G.S.: Decomposing LDC inequality. Oxford Econ. Papers 31(3), 437–459 (1979)Google Scholar
  21. Fields, G.S.: Distribution and Development. MIT Press, Cambridge (2001)Google Scholar
  22. Frazer, G.: Inequality and development across and within countries. World Dev. 34(9), 1459–1481 (2006)CrossRefGoogle Scholar
  23. De Gregorio, J., Lee, J.W.: Education and income inequality: new evidence from cross-country data. Rev. Income Wealth 48(3), 395–416 (2002)CrossRefGoogle Scholar
  24. Huang, H.C.R.: A flexible nonlinear inference to the Kuznets hypothesis. Econ. Lett. 84, 289–296 (2004)CrossRefGoogle Scholar
  25. Jha, S.K.: The Kuznets curve: a reassessment. World Dev. 24(4), 773–780 (1996)CrossRefGoogle Scholar
  26. Knight, J.B.: Explaining income distribution in less developed countries: a framework and an agenda. Oxford Bull. Econ. Stat. 38(3), 161–177 (1976)CrossRefGoogle Scholar
  27. Knight, J.B., Sabot, R.H.: Educational expansion and the Kuznets effect. Am. Econ. Rev. 73(5), 1132–1136 (1983)Google Scholar
  28. Kuznets, S.S.: Economic growth and income inequality. Am. Econ. Rev. 45(1), 1–28 (1955)Google Scholar
  29. Leigh, A., van der Eng, P.: Inequality in Indonesia: what can we learn from top incomes? J. Public Econ. 93(1/2), 209–212 (2009)CrossRefGoogle Scholar
  30. Matyas, L., Konya, L., Macquarie, L.: The Kuznets U-curve hypothesis: some panel data evidence. Appl. Econ. Lett. 5(11), 693–697 (1998)CrossRefGoogle Scholar
  31. Nugraha, K., Lewis, P.: Towards a better measure of income inequality in Indonesia. Bull. Indones. Econ. Stud. 49(1), 103–112 (2013)CrossRefGoogle Scholar
  32. Papanek, G.F., Kyn, O.: The effect on income distribution of development, the growth rate and economic strategy. J. Dev. Econ. 23(1), 55–65 (1986)CrossRefGoogle Scholar
  33. Ram, R.: Economic development and income inequality: further evidence on the U-curve hypothesis. World Dev. 16(11), 1371–1376 (1988)CrossRefGoogle Scholar
  34. Ram, R.: Can educational expansion reduce income inequality in less-developed countries? Econ. Educ. Rev. 8(2), 185–195 (1989)CrossRefGoogle Scholar
  35. Ram, R.: Educational expansion and schooling inequality: international evidence and some implications. Rev. Econ. Stat. 72(2), 266–274 (1990)CrossRefGoogle Scholar
  36. Robinson, S.: A note on the U hypothesis relating income inequality and economic development. Am. Econ. Rev. 66(3), 437–440 (1976)Google Scholar
  37. Saith, A.: Development and distribution: a critique of the cross-country U-hypothesis. J. Dev. Econ. 13(3), 367–382 (1983)CrossRefGoogle Scholar
  38. Shorrocks, A.: The class of additively decomposable inequality measures. Econometrica 48(3), 613–25 (1980)CrossRefGoogle Scholar
  39. Shorrocks, A., Wan, G.: Spatial decomposition of inequality. J. Econ. Geogr. 5(1), 59–81 (2005)CrossRefGoogle Scholar
  40. Skoufias, E.: Changes in regional inequality and social welfare in Indonesia from 1996 to 1999. J. Int. Dev. 13, 73–91 (2001)CrossRefGoogle Scholar
  41. Tadjoeddin, M.Z.: Miracle that never was: disaggregated level of inequality in Indonesia. Int. J. Dev. Issues 12(1), 22–35 (2013)CrossRefGoogle Scholar
  42. Tadjoeddin, M.Z., Suharyo, W.I., Mishra, S.: Regional disparity and vertical conflict in Indonesia. J. Asia Pac. Econ. 6, 283–304 (2003)CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  • Perdamen Sagala
    • 1
  • Takahiro Akita
    • 1
  • Arief Anshori Yusuf
    • 2
  1. 1.Graduate School of International RelationsInternational University of JapanMinami-UonumaJapan
  2. 2.Center for Economics and Development StudiesUniversity of PadjadjaranBandungIndonesia

Personalised recommendations