Globalization and expenditure inequality in Indonesia: A panel data approach

This study uses provincial export and import data and household consumption expenditure data (Susenas) to analyze the impact of globalization on inequality in Indonesia for the period 2000-2010. In a fixed effect panel regression framework, the relationship between globalization and inequality is estimated. The main results show that globalization has an inequality enhancing effect on inequality for provinces with globalization rate beyond a certain critical threshold. While it had a decreasing effect on inequality for provinces below the critical rate of globalization. Wage differentials between skill and unskilled labor as well as between sectors appears to be the main channel through which accelerated globalization enhances inequality in some provinces in Indonesia. Consequently human resource capacity building appears to be a condition sine qua non in rolling back inequality in Indonesia.