INDONESIA Arriya Mungsunti Andy Sumner Arief Yusuf The Developers - PowerPoint PPT Presentation

Kyunghoon Kim INDONESIA Arriya Mungsunti Andy Sumner Arief Yusuf The Developer’s Dilemma: Structural Transformation, Inequality Dynamics, and Inclusive Growth UNU-WIDER Workshop, 10 th /September/2019, Bangkok, Thailand

BACKGROUND: STEADY BUT SLOW (GDP per capita, constant, PPP 2011 international dollar) Standard deviation of GDP growth, 2000-2017 0 Indonesia 16000 1 14000 2 China 12000 3 4 10000 5 8000 6 6000 7 4000 8 2000 9 0 10 1995 2000 2005 2010 2015 11 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 China Indonesia GDP growth per annum, 2000-2017 (%) Notes : (i) 100 largest emerging and developing countries in terms of GDP in 2017. Source : IMF World Economic Outlook Database No data for Afghanistan and Venezuela. Equatorial Guinea, Iraq, and Libya are not shown in the graph. (ii) Dotted lines show the averages of each variable. Source : Author’s illustration based on IMF World Economic Outlook Database

THREE MAIN PERIODS: 1960 S -MID 1970 S ; MID-1970 S -MID1990 S ; 2000 S - Gross income Gini Gross income Gini 46 46 1975 1975 45 45 44 44 1980 1980 43 43 2010 2010 1970 1985 1985 42 42 2005 2005 1965 1990 1995 1990 1995 41 41 2000 2000 40 40 5 10 15 20 25 30 7 8 9 10 11 12 13 14 Manufacturing employment share (%) Manufacturing value added share (%, constant price) Notes : (i) The missing Gini coefficients were calculated using linear interpolation. (ii) Manufacturing value added and employment shares are five-year moving averages. For example, the data for 1975 is an average of data for 1971 – 1975. Source : Author’s illustration based on GGDC 10 -Sector Database and UNU-WIDER WIID

KUZNETSIAN TENSION IN THREE PERIODS Kuznetsian tension: Kuznetsian tension: Weak (‘adverse’) Strong Period I Increasing (1960s-mid 1970s) Period III (2000s-) Inequality Kuznetsian tension: Kuznetsian tension: Weak (‘benign’) Ambiguous Period II Stable or (mid-1970s-mid1990s) declining Weak Strong Growth-enhancing structural transformation

KEY FINDINGS ON THE LATEST PERIOD • Structural transformation losing dynamism • Weak growth in manufacturing & high value-added services • Recent increase in investment to strengthen ‘fundamentals’ (e.g. infra.): Positive but far from enough • Selective industrial policies & SOE-led high-tech. manufacturing development: Require more attention • Questionable record on inclusive growth • Will be close to eradicating extreme poverty by 2030, but poverty rates at higher thresholds are still very high & inequality is close to the post- independence period’s peak • Recent increase in investment on targeted social policies: Positive but far from enough • Challenges • Strengthening fiscal revenue and expenditure / sourcing domestic financial resources for development • Legitimising state’s long -term investment and industrial policies • Making social policies progressive

ECONOMIC HISTORY (1/2) : STRUCTURAL TRANSFORMATION (% of employment) (% of exports) (% of value added) 100 100 50 90 45 80 80 40 70 35 60 60 30 50 40 25 40 20 20 30 15 20 10 0 10 1928 1938 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 5 0 0 1930 1961 Others 1880 1890 1900 1910 1920 1930 1940 1950 1960 6 other main natural resources Services (including utilities) Agriculture etc. Sugar Non manufacturing industry Manufacturing Rubber Manufacturing Non manufacturing industry Petroleum & products Agriculture etc. Services Source : Van der Eng, P. (2010). ‘The Sources of Long -Term Source : Jones, G. (1966). ‘The Growth and Note : 6 other main natural resources = copra, tea, tobacco, tin, Economic Growth in Indonesia, 1880 –2008’. Explorations in coffee, palm oil Changing Structure of the Indonesian Economic History , 47(2010): 294 – 309. Labour Force, 1930 –81’. Bulletin of Source : Thomas, T., and J. Panglaykim (1966). ‘Indonesian Indonesian Economic Studies , 2(4): 50 – 74. Exports: Performance and Prospects 1950 –1970, Part I’. Bulletin of Indonesian Economic Studies , 2(5): 71 – 102.

ECONOMIC HISTORY (2/2) : QUALITY OF LIFE & INEQUALITY (1955/59, 1936/40 = 100) (Top 1% income share) (Expenditure Gini coefficients) 120 0,6 22 100 20 80 0,5 18 60 16 40 14 0,4 20 0 12 Life expectancy Per capita GDP Per capita (years) (2000 price, cereals and Rupiah) roots intake (kg 10 0,3 per year) 1920 1925 1930 1935 1925 1932 1939 1942 1953 1959 Source : Booth, A. (2016). Economic Change in Modern Source : Leigh, A., and P. Van der Eng (2009). ‘Inequality in Source : Van Leeuwen, B., and P. Földvári (2016). ‘The Indonesia: Colonial and Post-Colonial Comparisons . Cambridge: Indonesia: What Can We Learn from Top Incomes?’. Development of Inequality and Poverty in Indonesia, Cambridge University Press. Journal of Public Economics , 93(2009): 209 – 212. 1932 –2008’. Bulletin of Indonesian Economic Studies, 52(3): 379 – 402.

TRENDS IN ST (1/4) : VALUE ADDED (% of value added) (% of value added) (% of value added) Mining & Industry 35 35 quarrying 50 1960 2012 1960 2012 30 Manufacturing 30 40 25 25 Services 30 20 20 THR 15 15 20 CSP Government FIRB services TSC Construction 10 10 10 Agriculture etc. 5 5 EGW 0 0 0 1960 1970 1980 1990 2000 2010 Notes : (i) EGW = electricity, gas, water supply; THR = wholesale and retail trade, hotels, restaurants; TSC = transport, storage, communication; FIRB = finance, insurance, real estate, business services; CSP = community, social, personal services. Source : Author’s illustration based on GGDC 10 -Sector Database.

TRENDS IN ST (2/4) : TRADE (% of GDP) (% of exports) (% of imports) 60 1967 2015 90 90 1967 2015 Fuels 50 80 80 70 70 40 Manufac- 60 60 tures Exports 30 50 50 Agricultural 40 40 raw materials 20 Food Fuels Agricultural Manufac- 30 30 Ores & raw materials Food tures metals Ores & 10 Imports 20 20 metals 10 10 0 0 0 1965 1975 1985 1995 2005 2015 Source : Author’s illustration based on World Bank World Development Indicators.

TRENDS IN ST (3/4) : EMPLOYMENT (% of employment) (% of employment) (% of employment) 25 25 70 THR 1971 2012 1971 2012 60 20 20 Agriculture 50 etc. 15 Manufacturing 15 40 Government TSC FIRB CSP services Services 30 Mining & 10 quarrying 10 20 Construction Industry 5 5 10 EGW 0 0 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 Notes : (i) EGW = electricity, gas, water supply; THR = wholesale and retail trade, hotels, restaurants; TSC = transport, storage, communication; FIRB = finance, insurance, real estate, business services; CSP = community, social, personal services. Source : Author’s illustration based on GGDC 10 -Sector Database.

TRENDS IN ST (4/4) : LABOUR PRODUCTIVITY 1973 – 1986 (ISI) 1986 – 1996 (Deregulation) 1999 – 2012 (Post-crisis) Ratio of sectoral productivity to total productivity (log) Ratio of sectoral productivity to total productivity (log) Ratio of sectoral productivity to total productivity (log) 2 2 3 FIRB Mining & FIRB quarrying Mining & EGW 2 quarrying EGW Mining & 1 1 Manufacturing Manufacturing quarrying EGW TSC 1 Construction Construction CSP FIRB Manufacturing 0 0 TSC Construction TSC 0 THR CSP THR CSP Government Government Government THR services services services -1 -1 -1 0 2 4 6 8 10 12 14 0 2 4 6 8 10 12 14 16 18 0 2 4 6 8 10 12 14 16 18 20 22 Employment share (%) Employment share (%) Employment share (%) Notes : (i) EGW = electricity, gas, water supply; THR = wholesale and retail trade, hotels, restaurants; TSC = transport, storage, communication; FIRB = finance, insurance, real estate, business services; CSP = community, social, personal services. (ii) Sectors that experienced a simultaneous rise in employment share and relative productivity are coloured red. Source : Author’s illustration based on GGDC 10 -Sector Database.

TRENDS IN IG (1/4) : INEQUALITY Gini coefficient 48 46 44 42 40 38 36 34 32 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 Net income Gross income Consumption Poly. (Net income) Poly. (Gross income) Poly. (Consumption) Source : Author’s illustration based on UNU -WIDER WIID

TRENDS IN IG (2/4) : POVERTY RATE (%) 100 80 60 40 20 0 1984 1989 1994 1999 2004 2009 2014 Headcount ($1.9) Headcount ($3.1) Headcount ($10.0) Poly. (Headcount ($1.9)) Poly. (Headcount ($3.1)) Poly. (Headcount ($10.0)) Source : Author’s illustration based on World Bank, PovcalNet.

TRENDS IN IG (3/4) : GROWTH ELASTICITIES OF POVERTY 0,0 -0,5 -1,0 -1,5 -2,0 -2,5 %point %point % change % change %point %point % change % change change change ($1.9) ($3.1) change change ($1.9) ($3.1) ($1.9) ($3.1) ($1.9) ($3.1) GDP growth GDP per capita growth 1987-1996 2004-2013 Source : Author’s illustration based on World Bank PovcalNet and World Bank World Development Indicators