THE DYNAMIC RELATIONSHIP BETWEEN POVERTY, EDUCATION, ECONOMICGROWTH, UNEMPLOYMENT, AND INCOME INEQUALITY IN INDONESIA:EVIDENCE FROM TIME-SERIES MODELLING

Abstract

This empirical study aims to exmaine the determinants of poverty in Indonesia, focusing on the roles of education, economic growth, unemployment, and income inequality. Annual data covering the period 1991–2021 are obtained from the World Bank, Our World in Data, and the Global Data Lab. The Autoregressive Distributed Lag (ARDL) bounds testing approach and Granger causality analysis are employed to investigate the dynamic relationships and causal directions among the variables. The results of the Bounds test confirm the presence of a cointegrating relationship. In the long run, mean years of schooling and GDP per capita are negatively associated with poverty rates, suggesting the beneficial role of education and economic growth in reducing poverty. Increases in educational attainment and income per capita lead to decreases in poverty rates. Conversely, unemployment and the Gini index are positively linked with poverty rates, indicating that limited job opportunities and greater income inequality contribute to higher poverty rates. The results of Granger causality test reveal bidirectional causal relationships between poverty and education, poverty and economic growth, and poverty and unemployment. It also identifies a unidirectional causal relationship running from income inequality to poverty. These findings underscore the importance of policies aimed at expanding access to education, fostering inclusive economic growth, stimulating job creation, and reducing income inequality to achieve sustainable poverty reduction.