Income Distribution Inequality in West Sumatera and The Related Factors

Abstract

Income distribution inequality is a problem that often becomes important due to its tendency to have an increase. Province of West Sumatera has relatively high economic growth, however, this province also experiencing an increase in Gini ratio value which means income distribution inequality. Income distribution inequality is feared to cause many problems, not only economical but also socio politic. Income distribution inequality in West Sumatera can be reduced by reduction of income distribution inequality in Regencies/Municipalities level due to regional autonomy. The objective of this research is to analyze income distribution inequality in Regencies/Municipalities level from 2006 to 2011. Moreover, this research also analyzes factors affecting income distribution inequality in West Sumatera. Analysis result using Gini ratio calculation suggests that income distribution inequality in Regencies/Municipalities level in West Sumatera from 2006 to 2011 tends to increase over the year. Panel data regression from 2006 to 2011 is used to obtain factors affecting income distribution inequality. Economic growth, government’s spending on personal expenditure and earthquake are proved to have negative effect on income distribution inequality, while industrial sector’s share towards GRDP (Gross Regional Domestic Product), workers on industrial sector, government’s spending on non-personal expenditure and population growth can reduce income distribution inequality in West Sumatera. As for policy recommendation from this research; First, The government to keep pursue economic growth which is based on equity through dominant contribution in industrial sector and government’s spending on development. Second, to push industrial sector especially in labor intensive part that is able to absorb more workers. Third, to provide adequate education and infrastructure to the people so that everyone has equal opportunity in getting income. Fourth, to focus more on increment of government’s spending on non-personal expenditure especially for social transfer and public spending. Fifth, to create more productive population growth program, such as initiating a program to have one college graduate from each poor family. Lastly, to prepare accurate assistance mechanism and social transfer in case of natural disaster. The affectivity of assistance and social transfer has to be sharpen through evaluation and monitoring.