The Effect of Electricity Development in Indonesia on Poverty and Income Inequality

Abstract

Several provinces in Indonesia are still experiencing a crisis and the distribution of electricity is not evenly distributed. This is thought to be one of the causes of poverty and income inequality in several regions. Therefore, research on this matter is very important because electricity is a basic infrastructure which
is an important aspect in encouraging community economic activity as well as a tool that helps alleviate poverty and income inequality. This study used a simultaneous panel model, analyzed using the Two-Stage Least Square (TSLS) method, and used data from 31 provinces in Indonesia in 2010-2015. The results showed that electrification had a positive impact on economic growth. On the other hand, economic growth has a negative impact on poverty levels. However, an increase in electrification is actually indicated by an increase in income inequality in this study. So it can be concluded that economic growth is not enjoyed equally by people with low electrification ratios, but only by certain groups. The implication is that policies implemented to alleviate poverty and income inequality through increasing economic growth must pay attention to equal distribution of electricity, especially in areas based on labor-intensive industries, so that they are also able to attract investment and increase access to education.