Household net wealth in Indonesia: Inequality measurements and the determinants

Abstract

This thesis is a collection of seven chapters on household net wealth in Indonesia, focusing on the measurement of inequality and the determinants of household net wealth.

Chapter 1 provides an Introduction and Motivation for the thesis and Chapter 7 comprises an overall conclusion with some possible policy recommendations. The remaining five Chapters provide the substantive contributions of the thesis which are mainly drawn from the empirical analysis of several iterations of the Indonesian Family Life Survey.

Chapter 2 presents, by way of background and motivation, an overview of the relevant literature and the main methodological approaches taken in the literature.

Chapter 3 uses a three-parameter model to estimate the Dagum Type III approach to show the condition of inequality of household net wealth in Indonesia and to decide whether the influence of negative, zero, and positive household net wealth in Indonesia influences the data distribution. Findings show a decline in inequality of household net wealth in Indonesia during the period 1993-2014 with high inequality caused by the high inequality in the lower, middle, and upper household classes and less dispersed net wealth distribution.

Chapter 4 aims to uncover the interprovincial inequality of household net wealth in Indonesia using the inequality decomposition approach. This Chapter shows that the declining inequality in Indonesia is largely caused by inequality within the province where education is the largest equalising contributor. This Chapter also uses the Club Convergence approach to show the trend of growth of household net wealth in Indonesia. Results show the growth of household net wealth in Indonesia is converging over time with two clubs having formed. In particular a group of high-performing members dominates the Provinces in Java Island and the other group of lower-performing members consist of Provinces outside Java Island.

Chapter 5 uses a quantile regression approach to model the occurrence of heterogeneity across classes in the Indonesian population, for example, age, ethnicity, family structure, and human capital, that can affect household net wealth in Indonesia. Empirical findings show that the estimates derived from the from quantile regression that permit heterogeneity across classes, provide different results from the standard regression models that concentrate on the average value. In particular, they show that the occurrence of variables that have a positive effect on household net wealth have an increasing pattern, with a higher return for higher classes, for example, education aspect and household live in urban areas, while other variables have a negative effect on household net wealth with an increasing influence of higher classes, for example, household size and dependency ratio.

Chapter 6 focuses on the influence of spatial aspects in the estimation of the determinants of household net wealth, where the occurrence of spatial autocorrelation leads to household net wealth in one region being spatially correlated with other households in the same region and neighbouring regions. Empirical findings show a declining trend of spatial autocorrelation of household net wealth in Indonesia during the period 1993-2014 with the change of household net wealth in the region largely caused by spillover effects, i.e., the change of variables in neighbouring regions. The heterogeneity of the effect of variables is a by-product of economic progress and is influenced by the heterogeneity of the endowment at the sub-national level.