Urbanization and Expenditure Inequality in Indonesia: Testing the Kuznets Hypothesis with Provincial Panel Data
Perdamen Sagala Takahiro Akita Arief Anshori Yusuf
Focusing on Indonesia, this study analyzes the relationship between inequality and the process of urbanization. It performs a panel data regression analysis to test the Kuznets inverted-U hypothesis for urbanization based on a provincial panel data set of 33 provinces over the period 2000-2009, constructed by using the core National Socio-economic Survey (core Susenas). Our results support the Kuznets inverted-U hypothesis, whether the Gini coefficient or the Theil indices are used as a measure of inequality. According to our estimates, expenditure inequality would reach the peak at an urbanization rate of around 46-50%. Since the 2010 urbanization rate is 50%, this indicates that expenditure inequality has already attained the peak value. Thus, further urbanization would decrease expenditure inequality, but all other things being equal.