The Impact of Private Sector Growth on Poverty Reduction: Evidence From Indonesia

Daniel Suryadarma • Daniel Suryadarma • Asep Suryahadi • Asep Suryahadi
Working paper SMERU Research Institute • April 2007 Indonesia

Abstract

This paper assesses the effect of public and private sector growth on poverty in Indonesia. we use fixed capital formation growth as the proxy for the private sector and growth in government spending as the indicator of the public sector. we find that growth in both sectors significantly reduces poverty; moreover, they have the same elasticity. therefore, growth in both public and private sector spending will reduce poverty twice as fast as just relying on public spending. the implication is that it is crucial for governments to improve the business climate in their countries so that the private sector will be able to flourish and in the end expedite poverty reduction. keywords: private sector; investment; government expenditure; poverty reduction; Indonesia jel classification: h50, i32, o49

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SMERU Research Institute

Since its establishment in 2001, SMERU has been a leader in poverty and inequality research in In... see more