Abstract
Income inequality may hinder rural development and education is seen an important tool in rural development processes as well as it become an effective way in reducing rural income inequality. Human capital theory suggests that higher education can increase income, and it will decrease income inequality. The first objective of this study is to examine the effect of education on rural income inequality in Indonesia. This study also examines the relationship between environmental deterioration and rural income inequality. Studies about the impact of higher levels of inequality on environmental deterioration are not new, but the opposite studies are rare. Therefore, the second objective of this study is to examine the effect of environmental deterioration on rural income inequality in Indonesia. This study applies panel data from 32 provinces in Indonesia during 2012 to 2018. The results show that higher education resulting in lower rural income inequality in Indonesia. Furthermore, the finding also shows that the efforts to reduce environmental deterioration resulting in lower rural income inequality in Indonesia. This study suggests that it is vital to improve education level and to apply nature-friendly approaches to reduce income gaps in rural areas so the rural development goals can be achieved.
Highlights
Income inequality has not been merely related to economic issue, but it connects with social, and political issues
There are three types of panel data, i.e., Common Effect Model (CEM), Fixed Effect Model (REM) and Random Effect Model (REM) and the finest model is selected over three tests: Chow test, Lagrange Multiplier (LM) test and Hausman test
This study investigates in what way education and environmental sustainability may have significant consequences on rural income inequality in Indonesia
Summary
Income inequality has not been merely related to economic issue, but it connects with social, and political issues. Income inequality do impede economic growth and development, but it can create tensions between social classes, and political instability [1]. Education has become a significant factor that impact income inequality, and so, the policymakers usually take actions by applying educational policies that are able to lower income inequalities [2]. The human capital theory takes place in the association between education and income inequality [3]. It is believed that the accumulation of human capital through education, training and health has been effectively reduced income inequality. A research indicates than higher human capital has been remove the gap of income inequality [3]
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