The Effect of Trade Openness on Interprovincial Income Inequality in Indonesia

Rosita Septi Safitri, Firsty Ramadhona Amalia Lubis, Mahrus Lutfi Adi Kurniawan

Abstract


Trade openness is a measure of the extent to which a region participates in international trade, which is influenced by various factors and impacts the region's economy. Too high trade openness increases the risk of harming domestic industry and creating dependence on the export and import sectors. Trade openness is measured by the ratio of total exports and imports to Gross Regional Domestic Product (GRDP), while the Gini Index measures inequality. This research aims to analyze the influence of trade openness on provincial-level inequality in Indonesia, namely Nusa Tenggara, Kalimantan, Sulawesi, Maluku, and Papua. In this research, the data used is panel data from 17 provinces in Indonesia during the 2015-2022 period. The model used is the Seemingly Unrelated Regression (SUR) panel model. The research results show that trade openness has a significant positive effect on inequality between provinces in Indonesia. Foreign investment (PMA) significantly positively affects income inequality between provinces in Indonesia. Open unemployment has a significant positive impact on income inequality between provinces in Indonesia. The level of electrification significantly positively affects income inequality between provinces in Indonesia. Poverty has a significant positive effect on income inequality between provinces in Indonesia. Provinces with higher trade openness tend to have greater income inequality.


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References


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Publihser:
Universitas Ahmad Dahlan

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