Regional impacts of tourism-led growth on poverty and income inequality

Abstract

This study finds that an increase in Indonesia’s domestic and foreign tourism led to a reduction in poverty and an increase in income inequality in both rural and urban regions. The important finding that greater reductions in poverty were accompanied by greater increases in income inequality highlights the difficulty in addressing this trade-off from a tourism boost. Accompanying policies, such as investment to raise labour productivity in tourism-related sectors of hotels and restaurants, led to greater poverty reduction than a cash transfer policy. The cash transfer policy, on the other hand, reduced urban poverty but did not increase urban income inequality, unlike in the rural areas. Thus, there is no ‘one size fits all’ policy to address poverty and income inequality in rural and urban areas, and whether or not policies need to be targeted differently for touristic and non-touristic urban/rural regions is an area for future research.