Effects of Growth and Change in Inequality on Poverty Reduction

Economic growth is important to reduce poverty even though its effect are varies across countries and over times. Two factors that can affect it are the initial level of inequality and the change in inequality; if a country has high inequality, poverty reduces slowly rather than a country which has low inequality given the same growth rate; on the other hands, economic growth may be related by an increase or decrease in inequality, in which case, changes in inequality play an important role in explaining the interrelation between growth and poverty. Low inequality may expose them to the costs of contraction. Reducing inequality may give triple effective. In this work, the author analyze how much the changing on economic growth and inequality is affecting the changing on poverty reduction for twenty five provinces in Indonesia using the headcount and Gini Ratio data and per capita growth regional domestic product (GRDP) for each twenty five provinces on year 2001 and 2005. Through this study, it can be said that even though at provincial level the Gini ratios are fluctuate over time, Indonesia is one of the country having lower inequality rate.