Growth and Inequality: The Case of Indonesia, 1960-1997

This paper investigates whether the ‘Kuznets hypothesis’, that economic growth from low levels of GDP per capita is initially associated with an increase in income inequality and later followed by a decline in inequality, is supported by evidence for a less-developed country, Indonesia. The paper outlines the relevant features of the process of rapid growth and structural change, in particular industrialisation since the 1960s. It notes the possible consequences of this process for changes in income distribution, and draws on disparate sets of statistical data to trace trends in income inequality in Indonesia. The paper concludes that the evidence for Indonesia suggests an increase in inequality during the 1970s and a subsequent decrease of inequality until 1997. A comparison of the evidence with historical data for the UK and Japan suggests that income inequality in Indonesia was relatively low.