Abstract
Java Island is the center of development in Indonesia, and yet poverty remains its major problem. The pockets of poverty in Java are often located in urban and rural areas, dominated by productive age group population with low education. Taking into account spatial factors in determining policy, policy efficiency in poverty alleviation can be improved. This paper presents a Spatial Error Model (SEM) approach to determine the impact of education on poverty alleviation in Java. It not only focuses on the specification of empirical models but also in the selection of parameter estimation methods. Most studies use Maximum Likelihood Estimator (MLE) as a parameter estimation method, but in the presence of normality disturbances, MLE is generally biased. The assumption test on the poverty data of Java showed that the model error was not normally distributed and there was spatial autocorrelation on the error terms. In this study we used SEM using Generalized Methods of Moment (GMM) estimation to overcome the biases associated with MLE. Our results indicate that GMM is as efficient as MLE in determining the impact of education on poverty alleviation in Java and robust to non-normality. Education indicators that have significant impact on poverty alleviation are literacy rate, average length of school year, and percentage of high schools and university graduates.
Highlights
Java Island is the center of development in Indonesia, even though poverty remains one of its major problems
The basic principle of Generalized Methods of Moment (GMM) is to estimate β so that the moment of condition in the sample will be equal to the Kelejian dan Prucha [8] argue that GMM is as efficient as Maximum Likelihood Estimator (MLE)
Exploratory Spatial Data Analysis (ESDA) was applied based on: (1) Global Moran's I statistics score which described the effects of global spatial autocorrelation, and (2) LISA cluster map which described the effects of local spatial autocorrelation through spatial weighted matrices based on modified queen contiguity
Summary
Java Island is the center of development in Indonesia, even though poverty remains one of its major problems. This can be seen from the contribution of GDP of Java Island from 2008 to 2013, which has been consistent in the 56 percent rate [1]. Even though the Island has a significant contribution to the national economy, it still cannot get out of the poverty problem, with more than half of Indonesia's poor population living in the Island. The pockets of poverty in Java are located in urban and rural areas, dominated by productive age group population with low education and productivity, which put this group at a disadvantage in the labor market. A region with high poverty rate would affect and be affected by other regions around it
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