The relationship between trade liberalisation, poverty and inequality: the case of Indonesia
by Muhammad Sofjan
International Journal of Economic Policy in Emerging Economies (IJEPEE), Vol. 11, No. 5, 2018

Abstract: We provide a detailed investigation of the relationship between trade liberalisation, poverty and inequality in Indonesia by using provincial panel data from urban-rural regions. We use three models: an income model, a Gini model and a poverty model. The results were analysed using a simultaneous equations model and a data panel. After testing and analysing, it can be concluded that liberalisation of trade in Indonesia has proven to be able to lift most of the poor above the poverty line by creating job vacancies due to trade relations. However, trade is not able to reduce income inequality in Indonesia. Factors which significantly affect the level of inequality in Indonesia are the ratio of the number of workers in the non-governmental sector and the infrastructure, while the degree of trade openness and income growth is not significantly associated with inequality. Trade openness in Indonesia does not affect inequality.

Online publication date: Sun, 23-Sep-2018

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