SMERU Publication

Working Paper
Topic: Economic Policy, Poverty, Vulnerability, & Inequality

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Economic Growth and Poverty Reduction in Indonesia Before and After the Asian Financial Crisis

Asep Suryahadi, Gracia Hadiwidjaja, Sudarno Sumarto

Editor
Stephen Girschik

ABSTRACT

This paper assesses the relationship between economic growth and poverty reduction in Indonesia before and after the Asian financial crisis (AFC). Indonesia has a significantly slower poverty reduction post-AFC compared to the pre-AFC era. The trend in the growth elasticity of poverty indicates that the power of each% of economic growth to reduce poverty did not change greatly between the pre and post-AFC time periods. During both these periods, the growth of services sector is the largest contributor to poverty reduction in both rural and urban areas. Post-AFC, industrial sector growth has become largely irrelevant for poverty reduction even though this sector makes up the second largest share of GDP. Meanwhile, the importance of agricultural sector growth for poverty reduction is confined only to rural areas. Finally, the findings suggest that there is a need to promote economic growth in all sectors as the current rates are insufficient to recover to the rates of poverty reduction in the pre-AFC era.

Keywords: poverty, sectoral growth, Asian financial crisis, growth elasticity

TABLE OF CONTENTS

ABSTRACT
TABLE OF CONTENTS
LIST OF FIGURES
I. INTRODUCTION
II. SECTORAL STRUCTURE OF THE ECONOMY

2.1 Output
2.2 Employment
2.3 Economic Growth

III. POVERTY TRENDS AND PROFILES

3.1 Long Term Trends in Poverty
3.2 Urban and Rural Poverty
3.3 Sectoral Profile of Poverty

IV. ECONOMIC GROWTH AND POVERTY REDUCTION

4.1 The Growth-Poverty Model
4.2 Growth Elasticity of Poverty
4.3 Sectoral Contribution to Poverty Reduction

V. CONCLUSION AND IMPLICATIONS
LIST OF REFERENCES
APPENDICES