Living Standards and the Distribution of Income
Given that real GDP has almost certainly been growing faster than population in Indonesia for much of the last two centuries, what does this tell us about changes in living standards? There are several reasons why sustained, if erratic, growth in GDP might not translate into a broadly based improvement in living standards. If we define improving living standards in terms of real growth in household consumption expenditures shared by all classes of society, then we need to examine not the growth of aggregate GDP, but rather the growth in that part of it which is devoted to household consumption, after subtracting both current government expenditures and expenditure on capital formation on the part of both government, and private corporations and individuals. In the case of open economies, such as Indonesia has been for most of the nineteenth and twentieth centuries, we also need to allow for remittances abroad. To the extent that a significant part of gross domestic product has been used to finance overseas remittances, and these remittances have not been offset by inward capital flows, the capacity of the domestic economy to finance either domestic consumption or domestic capital formation is reduced.
KeywordsCotton Cloth Living Standard Indigenous Population Consumption Expenditure Central Bureau
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