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Urbanization and Expenditure Inequality in Indonesia: Testing the Kuznets Hypothesis with Provincial Panel Data

Focusing on Indonesia, this study analyzes the relationship between inequality and the process of urbanization. Itperforms 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.

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Center for Economics and Development Studies is a research center under the Department of Economics, Padjadjaran University, Indonesia. A leading research institute in Indonesia in the area of economics and development studies.
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