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Potential commodities boom: Harmful for income inequality

Mid-year of 2017 which will be marked as mid-term of President Joko ‘Jokowi’, is now around the corner. Jokowi set key developmental targets at the beginning of his administration. One of them is narrowing down income inequality.

 

Income inequality has declined since President Jokowi took the office. Gini Coefficient, which measures income distribution ranges from zero (perfect equal meaning everyone earns the same income) to one (only one person earns all income in an economy), has fallen from 0.405 to 0.394. Gini Coefficient indicates a declining trend.

 

Therefore, the follow-up question for that progress is that what makes income inequality narrowing down? There is a tendency that lower commodity prices would lead to narrowing down income inequality.

 

It is no secret that Indonesia’s economy relies heavily on commodities, for example palm oil, rubber, and natural gas. When the commodity prices boom, Indonesia enjoys relatively massive amount of foreign exchange, and eventually higher national income and economic growth.

 

 

However, income from commodity price boom is not distributed well for many. And it might lead to widening income inequality, for two main reasons. First, only a certain small group of people benefits from commodity boom. They are generally rent seekers who get a permit to exploit natural resources. 


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