Regional Inequality of Yogyakarta

The issues of poverty and inequality have always been burning in human society. Some people earn more money and display higher wealth levels, while other experience a lack of money for living, education, health care, etc. Indonesia, as a developing country, is not an exception because inequality can be observed in all regions of this country, and especially in Yogyakarta, a special Indonesian province.

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Needless to say, numerous scholars addressed the topic of poverty and inequality in their research works. Some of them were purely theoretical, while other works touched upon the specific inequality issues in Indonesia, as well as in other developing Asian countries. Thus, Simon Kuznets (1955) is one of the first scholars to address the relation of income distribution inequality and the stages of the economic growth of every single country. As a result, Kuznets (1955) noticed the direct connection between the time the country spends developing and the increase of income distribution equality (p. 20). Williamson (1965) also addresses the issues of unequal distribution of the national income of the majority of countries at the period when the issues were only emerging, i. e. over four decades ago (p. 4). As well, the controversy over the South and North conflict of the developing and developed countries respectively is discussed by Williamson (1965).

Robinson (1976) also considers the income inequality in developed and developing countries but brings more scholarly methodology to this discussion by introducing the notion of the U curve, i. e. the illustration of the state when the income distribution changes from unequal to the equal pattern (p. 437). Ahluwalia (2001) develops this point of view by supporting the idea by Kuznets (1955) and by arguing that the highest rate of income inequality is observed in developing countries at the “in the early stages of their industrialization” (Ahluwalia, 2001, p. 128). As well, Ahluwalia (2001, pp. 129 – 130) addressed the U pattern of income distribution inequality development and attributed a great role in testing this pattern to the GNP and GDP per capita figures.

Litchfield (1999) was another scholar to introduce some more purely scientific methods and tools of measuring and studying inequality. In her work, Litchfield (1999, pp. 2 – 3) discusses the Axiomatic approach, income scale independence, and principle of population as the basic inequality measuring tools. As well, Litchfield (1999, p. 2) draws the line between the terms welfare, inequality, and poverty placing them in such an order from the widest to the narrowest one. Ausloos et al. (2009) move further to unite the Theil index and the q-entropy notion in the attempt to measure the income inequality and the extent to which it was affected by globalization in the timeframe between 1950 and 2003 (p. 390).

Further on, Conceicao and Ferreira (2000), consider the possibility of measuring income inequality via the variance principle or the Gini coefficient (pp. 3 – 4). Barro (1999) and Oh (2009) also contribute to the development of the theoretical framework for measuring and studying various inequality phenomena in developing and developed countries, often even arguing that the economic development does not decrease inequality, while the latter can substantially slow the development down (Oh, 2009, p. 1). Kaasa (2005) discuss such factors of income inequality as economic development of the country or a region, demographic factors like the age distribution, birth and death rates, levels of education, etc., and political phenomena like the proportion of governmentally run and private enterprises, democracy development, and liberalization of the market (pp. 15 – 16).

As further research reveals, the above theoretical frameworks for the study of income inequality in developed countries are widely applied by scholars considering the income inequality rates in Indonesia on the whole and Yogyakarta as its special province. Thus, Anand and Kanbur (1993, p. 26) argue that the income distribution structure is two-fold and it consists of:

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  1. The state when the rural population has a significantly lower income than the urban population;
  2. The percentage of inequality within rural communities is much lower than in urban ones.

Anand and Kanbur (1993, p. 26) also argue that such a composition facilitates inequality as the urban population increases, and the data provided by Akita and Alisjahbana (2002) prove this idea. For example, according to Akita and Alisjahbana (2002, p. 201), the share of manufacturing in the Indonesian GDP rose from 12% to 21% between 1985 and 1995, while the agricultural share declined to 26% from the level of 46% fro the same period of time. At the same time, the income inequality in Yogyakarta started growing and displayed the Theil index of 0.068 in 1998 as compared to only 0.059 in 1993 (Akita and Alisjahbana, 2002, p. 204).

These figures are even more impressive if one considers the fact that, according to Akita and Alisjahbana (2002), Yogyakarta is not in the worst conditions according to, for instance, educational opportunities, as in 1997 0.45% of its population attended high schools as compared to 0.15% in West Nusa Tenggara (p. 202). However, Akita (2003) also notices that the Java-Bali region, to which Yogyakarta belongs as a province, displays the highest level of inequality among all Indonesian regions if the within-region relation is taken into consideration (p. 65). The Java-Bali region has the Theil index of 0.172 in 1997, while Sulavesi displayed only a 0.005 Theil the same year. Accordingly, Akita (2003) argues that the reason for such a high inequality in the Java-Bali region and Yogyakarta province is the high distribution inequality in Jakarta that influences the coefficient for the whole region.

To find support for these data, one might also address the work by Akita and Lukman (1995; 1999a, b), where the authors state that Yogyakarta has been one of the provinces with the relatively high inequality levels since 1987, and the situation remained the same in 1990 and 1993, while the inequality coefficient in Yogyakarta grew from 0.191 to 0.256 between 1987 and 1993 (pp. 75, 77). Further on, Akita and Miyata (2008) connect the above-discussed increase of inequality rates in Indonesia on the whole and Yogyakarta in particular to the crisis that struck the country’s economy in the middle of 1997 (p. 154), when Indonesia lost 13% of its GDP during six months.

As well, Akita and Miyata (2008) see the fast urbanization of the country, 46% of the population lived in urban areas as for 1998, as another factor that conditioned the sharp increase of income inequality from 0.25 Theil index in 1996 to 1.83 in 1998 (p. 154). At the same time, considering the income inequality from another side, Akita and Szeto (2000) and Booth (2000) offer the analysis of Indonesian inequalities through the perspective of the Gini coefficient of household income. This analysis reveals that the data for Yogyakarta changed insufficiently and remained considerably high over the decades between the 1960s and 1990s. At the same time, the data by Akita and Szeto (2000, p. 171) and Booth (2000, p. 76) also show that the percentage of the population of Yogyakarta living below the poverty line increased in rural areas almost twice as high as in urban areas, and this allows confirming the assumption about the role of urbanization in forming the income inequality in this Indonesian province.

Finally, Akita (2001; 2004), Alisjahbana et al. (2004), Haughton and Khandker (2009), Huppi, M. and Ravallion (1991), and Skoufias et al. (2000) carry out the comparative analyses of the Theil index T, Theil index L, and the Gini coefficient for various Indonesian provinces and come to the conclusion that Yogyakarta has always displayed ones of the sharpest increases in income inequality levels. For example, the Theil T index grew from 0.226 to 0.275 between 1987 and 1996, while the Gini coefficient increased to 0.402 from 0.363 (Akita, 2001, p. 33).

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Accordingly, the above-presented review of the relevant scholarly works on income inequality theory and its practical concerns in Indonesia and Yogyakarta allows saying that the major factors that condition the income inequality in Yogyakarta are economic, demographic, and political. The sharpest increase in income inequality was observed in Yogyakarta between 1996 and 1998, and that was the time of the severe economic crisis that caused the loss of 13% of Indonesian GDP. To fight the crisis, stricter governmental regulation was introduced in Indonesia, while the low-income levels in rural areas provided for the fast urbanization of the population which, in it turn, only increased the income inequality in Indonesia on the whole and Yogyakarta in particular.

References

Ahluwalia, M. (2001). Income Distribution and Development: Some Stylized Facts. Income Distribution in Developing Countries, 66(2), 128 – 135.

Akita, T. (2001). Income Inequality in Indonesia. Regional Inequality, 1, 1 – 45.

Akita, T. (2003). Decomposing regional income inequality in China and Indonesia using two-stage nested Theil decomposition method. Annals of Regional Science, 37, 55 – 77.

Akita, T. (2004). Sectoral Decomposition of Regional Income Inequality in Indonesia: A Comparison with Postwar Japan. IUJ Research Institute Working Paper, 3, 1 – 27.

Akita, T. and Alisjahbana, A. (2002). Regional income inequality in Indonesia and the initial impact of the economic crisis. Bulletin of Indonesian Economic Studies, 38(2), 201 – 22.

Akita, T. and Lukman, R. (1995). Interregional Inequalities in Indonesia: A Sectoral Decomposition Analysis for 1975-92. Bulletin of Indonesian Economic Studies, 31(2), 61 – 81.

Akita, T. and Lukman, R. (1999a). Spatial patterns of expenditure inequalities in Indonesia: 1987, 1990 and 1993. Bulletin of Indonesian Economic Studies, 35(2), 65 – 88.

Akita, T., Lukman, R., and Yamada, Y. (1999b). Inequality in the distribution of household expenditures in Indonesia: a Theil decomposition analysis. The Developing Economies, 37(2), 197 – 221.

Akita, T. and Miyata, S. (2008). ‘Urbanization, educational expansion, and expenditure inequality in Indonesia in 1996, 1999, and 2002. Journal of the Asia Pacific Economy, 13(2), 147 – 167.

Akita, T. and Szeto, J. (2000). Inpres Desa Tertingal (IDT) Program and Indonesian Regional Inequality. Asian Economic Journal, 14(2), 167 – 186.

Alisjahbana, A. et al. (2003). Understanding the Determinants and Consequences of Income Inequality in Indonesia. Income Distribution and Sustainable Development: The Indonesian Experience, 3(9), 1 – 26.

Anand, S. and Kanbur, S. (1993). The Kuznets process and the inequality – development relationship. Journal of Development Economics, 40, 25 – 52.

Ausloos, M. et al. (2009). Introducing the q-Theil index. Brazilian Journal of Physics, 39(2A), 388 – 395.

Barro, R. (1999). Inequality and Growth in a Panel of Countries. Harvard University, 1 – 51.

Booth, A. (2000). Poverty and inequality in the Soeharto era: an assessment. Bulletin of Indonesian Economic Studies, 36(1), 73 – 104.

Conceicao, P. and Ferreira, P. (2000). The Young Person’s Guide to the Theil Index: Suggesting Intuitive Interpretations and Exploring Analytical Applications. UTIP Working Paper Number 14, 1 – 54.

Haughton, J. and Khandker, S. (2009). Handbook on Poverty and Inequality. The World Bank, Washington, D.C.

Huppi, M. and Ravallion, M. (1991). The Sectoral Structure of Poverty during an Adjustment Period: Evidence for Indonesia in the Mid-1980s. World Development, 19(12), 1653 – 1678.

Kaasa, A. (2005). Factors of income inequality and their influence mechanisms: a theoretical overview. Tartu University Press, 1 – 48.

Kuznets, S. (1955). Economic Growth and Income Inequality. The American Economic Review, 45(1), 1 – 29.

Litchfield, J. (1999). Inequality: Methods and Tools. Text for World Bank’s Web Site on Inequality, Poverty, and Socio-economic Performance, 1 – 16.

Oh, J. (2009). Regional inequality of South Korea. Term Paper, 1 – 30.

Robinson, S. (1976). A Note on the U Hypothesis Relating Income Inequality and Economic Development. The American Economic Review, 6, 437 – 440.

Skoufias, E. et al. (2000). Changes in Household Welfare, Poverty and Inequality During the Crisis. Bulletin of Indonesian Economic Studies, 36(2), 97 – 114.

Williamson, J. (1965). Regional Inequality and the Process of National Development: A Description of the Patterns. Economic development and cultural change, 13(4), 1 – 84.

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