Skip to main content

Advertisement

SpringerLink
Log in

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

  • Original Paper
  • Published:
Letters in Spatial and Resource Sciences Aims and scope Submit manuscript

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.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

Notes

  1. For example, Ahluwaria (1976a, b), Knight and Sabot (1983), Saith (1983), Papanek and Kyn (1986), Campano and Salvatore (1988), Ram (1988, 1989, 1990), Anand and Kanbur (1993), Jha (1996), Deininger and Squire (1997, 1998), Matyas et al. (1998), De Gregorio and Lee (2002), Eastwood and Lipton (2004), Huang (2004), Frazer (2006) and Angeles (2010).

  2. Angeles (2010) also employed the share of employment outside agriculture as an explanatory variable rather than the share of urban population; but, the result did not support the Kuznets hypothesis either.

  3. It should be noted that a large part of urbanization in Indonesia is not due to internal migration, but due to urban sprawl, where rural areas are reclassified as urban areas.

  4. See, for example, Akita and Lukman (1999), Akita et al. (1999), Asra (2000), Skoufias (2001), Tadjoeddin et al. (2003), Cameron (2002), Akita and Miyata (2008), Leigh and van der Eng (2009), Nugraha and Lewis (2013) and Tadjoeddin (2013).

  5. It should be noted that expenditures are more equally distributed than incomes; thus, expenditure inequality tends to be smaller than income inequality. In a developing country like Indonesia, expenditure data are more reliable than income data (Akita et al. 1999).

  6. We can obtain a similar decomposition equation based on the Theil \(L\) index.

  7. In urban Yogyakarta, inequality due to educational differences is very large, accounting for more than 40 % of urban inequality, which is compared to 20 % in Jakarta.

  8. Central Java registers a relatively low expenditure inequality among Java provinces, owing to its small urban-rural disparity.

References

  • Ahluwaria, M.S.: Inequality, poverty and development. J. Dev. Econ. 3(4), 307–342 (1976a)

    Article  Google Scholar 

  • Ahluwaria, M.S.: Income distribution and development: some stylized facts. Am. Econ. Rev. 66(2), 128–135 (1976b)

    Google Scholar 

  • Akita, T., Lukman, R.A.: Spatial patterns of expenditure inequalities in Indonesia: 1987, 1990, and 1993. Bull. Indones. Econ. Stud. 35, 65–88 (1999)

    Article  Google Scholar 

  • 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)

    Article  Google Scholar 

  • 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)

    Article  Google Scholar 

  • 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)

  • Anand, S.: Inequality and Poverty in Malaysia: Measurement and Decomposition. World Bank Research Publication, Oxford University Press, New York (1983)

  • Anand, S., Kanbur, S.M.R.: The Kuznets process and the inequality-development relationship. J. Dev. Econ. 40(1), 25–52 (1993)

    Article  Google Scholar 

  • Angeles, L.: An alternative test of Kuznets’ hypothesis. J. Econ. Inequal. 8(4), 463–473 (2010)

    Article  Google Scholar 

  • Asian Development Bank (ADB): Key Indicators for Asia and the Pacific 2013. Asian Development Bank, Philippines (2013)

  • Asra, A.: Poverty and inequality in Indonesia: estimates, decomposition and key issues. J. Asia Pac. Econ. 5, 91–111 (2000)

    Google Scholar 

  • Cameron, L.: Growth with or without equity? The distributional impact of Indonesian development. Asian Pac. Econ. Lit. 16(2), 1–17 (2002)

    Article  Google Scholar 

  • Campano, F., Salvatore, D.: Economic development, income inequality and Kuznets’ U-shaped hypothesis. J. Policy Modeling 10(2), 265–280 (1988)

    Article  Google Scholar 

  • Central Bureau of Statistics (CBS): Core National Socio-economic Survey. Central Bureau of Statistics, Jakarta (various issues)

  • Central Bureau of Statistics (CBS): Gross Regional Domestic Product of Provinces in Indonesia by Industrial Origin. Central Bureau of, Statistics, Jakarta (various issues)

  • Cornwell, K., Anas, T.: Survey of recent developments. Bull. Indones. Econ. Stud. 49(1), 7–33 (2013)

    Article  Google Scholar 

  • Deininger, K., Squire, L.: Economic growth and income inequality: reexamining the links. Finance and Development, pp 38–41(1997)

  • Deininger, K., Squire, L.: New ways of looking at old issues: inequality and growth. J. Dev. Econ. 57(2), 259–287 (1998)

    Article  Google Scholar 

  • 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 

  • Fields, G.S.: Decomposing LDC inequality. Oxford Econ. Papers 31(3), 437–459 (1979)

    Google Scholar 

  • Fields, G.S.: Distribution and Development. MIT Press, Cambridge (2001)

    Google Scholar 

  • Frazer, G.: Inequality and development across and within countries. World Dev. 34(9), 1459–1481 (2006)

    Article  Google Scholar 

  • De Gregorio, J., Lee, J.W.: Education and income inequality: new evidence from cross-country data. Rev. Income Wealth 48(3), 395–416 (2002)

    Article  Google Scholar 

  • Huang, H.C.R.: A flexible nonlinear inference to the Kuznets hypothesis. Econ. Lett. 84, 289–296 (2004)

    Article  Google Scholar 

  • Jha, S.K.: The Kuznets curve: a reassessment. World Dev. 24(4), 773–780 (1996)

    Article  Google Scholar 

  • Knight, J.B.: Explaining income distribution in less developed countries: a framework and an agenda. Oxford Bull. Econ. Stat. 38(3), 161–177 (1976)

    Article  Google Scholar 

  • Knight, J.B., Sabot, R.H.: Educational expansion and the Kuznets effect. Am. Econ. Rev. 73(5), 1132–1136 (1983)

    Google Scholar 

  • Kuznets, S.S.: Economic growth and income inequality. Am. Econ. Rev. 45(1), 1–28 (1955)

    Google Scholar 

  • 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)

    Article  Google Scholar 

  • Matyas, L., Konya, L., Macquarie, L.: The Kuznets U-curve hypothesis: some panel data evidence. Appl. Econ. Lett. 5(11), 693–697 (1998)

    Article  Google Scholar 

  • Nugraha, K., Lewis, P.: Towards a better measure of income inequality in Indonesia. Bull. Indones. Econ. Stud. 49(1), 103–112 (2013)

    Article  Google Scholar 

  • 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)

    Article  Google Scholar 

  • Ram, R.: Economic development and income inequality: further evidence on the U-curve hypothesis. World Dev. 16(11), 1371–1376 (1988)

    Article  Google Scholar 

  • Ram, R.: Can educational expansion reduce income inequality in less-developed countries? Econ. Educ. Rev. 8(2), 185–195 (1989)

    Article  Google Scholar 

  • Ram, R.: Educational expansion and schooling inequality: international evidence and some implications. Rev. Econ. Stat. 72(2), 266–274 (1990)

    Article  Google Scholar 

  • Robinson, S.: A note on the U hypothesis relating income inequality and economic development. Am. Econ. Rev. 66(3), 437–440 (1976)

    Google Scholar 

  • Saith, A.: Development and distribution: a critique of the cross-country U-hypothesis. J. Dev. Econ. 13(3), 367–382 (1983)

    Article  Google Scholar 

  • Shorrocks, A.: The class of additively decomposable inequality measures. Econometrica 48(3), 613–25 (1980)

    Article  Google Scholar 

  • Shorrocks, A., Wan, G.: Spatial decomposition of inequality. J. Econ. Geogr. 5(1), 59–81 (2005)

    Article  Google Scholar 

  • Skoufias, E.: Changes in regional inequality and social welfare in Indonesia from 1996 to 1999. J. Int. Dev. 13, 73–91 (2001)

    Article  Google Scholar 

  • Tadjoeddin, M.Z.: Miracle that never was: disaggregated level of inequality in Indonesia. Int. J. Dev. Issues 12(1), 22–35 (2013)

    Article  Google Scholar 

  • Tadjoeddin, M.Z., Suharyo, W.I., Mishra, S.: Regional disparity and vertical conflict in Indonesia. J. Asia Pac. Econ. 6, 283–304 (2003)

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Graduate School of International Relations, International University of Japan, Minami-Uonuma, Japan

    Perdamen Sagala & Takahiro Akita

  2. Center for Economics and Development Studies, University of Padjadjaran, Bandung, Indonesia

    Arief Anshori Yusuf

Authors
  1. Perdamen Sagala
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Takahiro Akita
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Arief Anshori Yusuf
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Takahiro Akita.

Additional information

An earlier version of the paper was presented at the 23rd Pacific Conference of the Regional Science Association International in Bandung, Indonesia in July 2013. The authors would like to thank participants of the session on Poverty, Inequality and Inter-regional Disparity and two anonymous referees for their useful comments and suggestions. Takahiro Akita is grateful to the Japan Society for the Promotion of Science for its financial support (Grant-in-Aid for Scientific Research No. 24530274).

Rights and permissions

Reprints and permissions

About this article

Cite this article

Sagala, P., Akita, T. & Yusuf, A.A. Urbanization and expenditure inequality in Indonesia: testing the Kuznets hypothesis with provincial panel data. Lett Spat Resour Sci 7, 133–147 (2014). https://doi.org/10.1007/s12076-013-0106-7

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s12076-013-0106-7

Keywords

JEL Classification

Search

Navigation