Abstract
The characteristic of structural transformation is a decrease in the share of agriculture followed by an increase in the industry share in the economy. Sometimes, the share of services to the economy increases more rapidly than the share of the industry, called immature structural transformation. This study aims to analyze the structural transformation process in East Java and its impact on poverty alleviation. Panel data for 38 districts/cities used from the Statistics Indonesia (BPS) during the 2012-2015 period. The estimation results revealed empirically that the service sector has a significant impact on reducing poverty in East Java. This research argues that East Java has experienced immature structural transformation seen from the stagnation of the industry’s share of the economy. It is supposed that the role of the industrial sector is not significant, while the service sector is better to reduce poverty.Keywords: Structural Transformation, Poverty, East Java, Panel DataJEL: B22, I32, L16
Highlights
As an emerging country, Indonesia has been facing economic obstacles to reach a developed country stage
This study aims to analyze further the impact structural transformation process in East Java on poverty eradication
We explore the link between structural transformation and inequality in Indonesia by applying Theil’s L decomposition
Summary
Indonesia has been facing economic obstacles to reach a developed country stage. Labor productivity in the primary sector, such as agriculture, is relatively lower than that in the secondary industry, such as manufacturing and services This condition means that the shift in resources from the primary sector to the secondary industry increases growth. This study aims to analyze further the impact structural transformation process in East Java on poverty eradication. Aggarwal (2016) found that structural transformation in India has not been going well despite its impact on poverty reduction This situation is because there are still many workers, most of whom are still trapped working in the agricultural sector. The independent variable used as an indicator of structural change is the share of labor in the agricultural, industrial, and service sectors and used in research Lee (2018). The models are used intentionally to complete each other and find which fittest model represents the poverty variable
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