The Kuznets Curve and the case of Indonesia (1960 - 2010)

This thesis tested whether or not changing inequality in Indonesia over the period of its rapid transformation from 1960s onwards, aligns with the Kuznets Curve hypothesis. This study was undertaken because of a common view in the Kuznets stream of literature that the inverted-U curve is better tested over time rather that by cross-sectional data. To this end, this thesis first examined the Kuznets literature in detail, followed by testing of Kuznets’s (1955) inverted-U using several sources of inequality data followed by regression analysis of several variables associated with the development process. It was also tested whether other explanations of inequality offered in the Kuznets literature can adequately explain the experience of Indonesia in the period. It was found that Indonesia does not experience the inverted-U in inequality over this time, rather a Ushape curve was observed - precisely the opposite that Kuznets (1955) would predict. It was also found that none of the other common explanations of what determines the income distribution offered in the Kuznets stream of literature - for example, education - could adequately explain the experience of Indonesia in the period. These findings are significant because they provide more evidence to disprove the Kuznets Curve and also to show that income inequality in Indonesia is increasing with no adequate explanation available from the Kuznets stream of literature.