Miracle that never was: disaggregated level of inequality in Indonesia

Abstract

PurposeThe paper aims at re‐examining the notion of low and stable income inequality during the high growth period of Indonesia (1970s‐1990s).Design/methodology/approachDifferent approaches are used to reassess the low and stable trend of the overall inequality at the national level such as assets concentration and functional income inequality. Disaggregated inequality at district level is conducted by treating municipalities as growth centres and estimated using the random and fixed effects models as well as the GMM estimation.FindingsAlternative measures of income inequality have indicated that economic inequality in Indonesia was not as low as it was perceived and exhibited an increasing trend during the period associated with the miracle. Furthermore, using the Susenas‐based Gini coefficient, across‐district analysis of inequality indicates the presence of inverted‐U Kuznets curve of income and inequality, which could not be empirically observed when the analysis is based on time series data of aggregate Gini measure at the national level.Originality/valueThe paper challenges the notion of the East Asian economic miracle in the case of Indonesia. It provides some evidence of the Kuznets curve relationship between income and inequality within a country based on cross‐districts exercise.