Achmad Tjachja Nugraha

Syarif Hidayatullah State Islamic University, Jakarta, Indonesia

Email: achmad_tj@yahoo.com

ORCID 0000-0001-9184-7773

The role of infrastructure in economic growth and income inequality in Indonesia

Gunawan Prayitno

Universitas Brawijaya, Malang, Indonesia

Email: gunawan_p@ub.ac.id

ORCID 0000-0003-4534-9524

Masito Erlando Situmorang

BPS Puncak Jaya Regency, 

Papua Province, Indonesia

Email: masitositumorang@gmail.com

ORCID 0000-0001-8122-6850

Ahmadriswan Nasution

The Center of Education and Training of BPS-Statistics Indonesia

Email: ahmadriswan73@gmail.com

ORCID 0000-0002-8028-7683

Abstract. The relationship between infrastructure development, economic growth, and income inequality has always been debated. Those debates raised the question of “is there a role for infrastructure development in economic growth which in turn encourages a decline in income inequality?”. This study aims to analyze the direct effect of infrastructure development on economic growth and the indirect effect - on income inequality. The present study used the Gini Ratio, Gross Regional Domestic Product (GRDP) data at constant market prices, investment, number of workforces, percentage of poor population, distribution of clean water, electricity distribution, and road length as of 2010-2016. The analytical methods applied here include descriptive method along with a two-step regression analysis method. The results reveal that infrastructure had a positive effect on economic growth, whereas direct economic growth harmed income inequality. These findings demonstrate that infrastructure indirectly reduces income inequality. Thus, infrastructure development, especially basic infrastructure and transportation, could reduce income inequality in Indonesia. Based on these findings, the government and related parties should encourage investment in basic infrastructure and transportation to improve economic performance sustainably.

Received: May, 2019

1st Revision: October, 2019

Accepted: January, 2020

DOI: 10.14254/2071-789X.2020/13-1/7

JEL Classification: D63, H54, O18, O47

Keywords: infrastructure, income inequality, economic growth, Indonesia