Bestari Dwi Handayani, Heri Yanto, Amin Pujiati, Abdul Rahim Ridzuan, J.S. Keshminder, Mohd Shahidan Shaari
Despite the recent reduction in the poverty rate in Indonesia, income inequality has not shown any improvement. Income inequality, also known as income disparity, has been a prolonged issue in Indonesia and has caused great dissatisfaction among the public. Many of them do not feel an improvement in their wellbeing. Most studies explore these issues based on microeconomics perspectives, and limited studies focus on macroeconomic determinants. Thus, it is imperative to investigate the potential macroeconomic determinants of income inequality in Indonesia, particularly energy consumption (ENC), corruption (COR), foreign direct investment (FDI), and other supporting determinants such as economic growth (GDP), financial development (FD), and CO2 emissions. Data from 1984 to 2020 were collected and analyzed, employing the autoregressive distributed lag (ARDL) approach. The findings indicate that economic growth, corruption, and FDI can contribute to a smaller gap between the rich and the poor. At the same time, greater CO2 emissions can intensify income inequality in Indonesia both in the short and long run. Pollution, as captured by CO2 emissions, can affect the health of the poor. Health problems create difficulties for poor people to work and reduce the probability of earning income, ultimately widening income inequality. FD and energy use, on the other hand, do not influence income distribution in the long and short run. The findings indicate that boosting economic growth and FDI significantly reduce income disparity in Indonesia. Various policy recommendations are suggested in these studies based on the long-run outcomes. © 2022 by the authors.
Faculty of Economics, Universitas Negeri Semarang, Semarang, 50229, Indonesia; Faculty of Business and Management, Universiti Teknologi MARA, Melaka Campus, Alor Gajah, 78000, Malaysia; Faculty of Economics and Business, Universitas Negeri Malang, Malang, 65145, Indonesia; Institute for Big Data Analytics and Artificial Intelligence, Institute for Research on Socio Economic Policy, Universiti Teknologi MARA, Shah Alam, 40450, Malaysia; Centre for Economic Development and Policy, Universiti Malaysia Sabah, Kota Kinabalu, 88400, Malaysia; Faculty of Business and Management, Universiti Teknologi MARA, Selangor Campus, Bandar, Puncak Alam, 42300, Malaysia; Department of Business Administration, World University of Bangladesh, Dhaka, 1205, Bangladesh; Centre of Excellence for Social Innovation Sustainability (CoESIS), Faculty of Business and Communication, Universiti Malaysia Perlis, Arau, 02600, Malaysia
