CEDS UNPAD

The Long-Run Evolution of Inequality In Indonesia, 1990 - 2012: New Estimates and Four Hypotheses On Drivers

The issue of inequality in Indonesia has become more visible in public policy debate over the last year or so because the Gini coefficient has risen to its highest historically reported point. This raises two questions: first, what are the long-run trends in inequality by a range of measures of inequality (and are they consistent with the Gini trends)? Second, what are primary drivers of the recent rises in inequality? This paper makes new, consistent, long-run estimates of inequality in Indonesia using the national household survey, the Susenas for the period 1990–2012. The estimates suggest that inequality in Indonesia has risen quite significantly over the two decades. The 1990s were a period of relatively stable and moderate inequality by international standards. However, the rise in inequality is much more visible in the data for the 2000s, the era of political reform and democratisation. The magnitude of the rise in inequality is indeed quite spectacular: between 2002–2012, the Gini coefficient and the decile dispersion ratio have increased by roughly 20% and 50% respectively and rising inequality is evident across regions, provinces as well as across urban-rural dimensions. Interestingly, the data point towards an inequality convergence across provinces because the change in inequality has been faster in provinces with a lower initial level of inequality. We propose four, non-mutually exclusive hypotheses on the drivers of inequality in Indonesia over the last decade in particular.

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Center for Economics and Development Studies is a research center under the Department of Economics, Padjadjaran University, Indonesia. A leading research institute in Indonesia in the area of economics and development studies.
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