Infrastructure, Growth, and Poverty Reduction in Indonesia: A Cross-sectional Analysis

Using provincial level panel data on Indonesia in 1976-1996, this paper investigates a cross-sectional difference on how road capital influences the process of economic growth and poverty reduction. Provinces were first classified according to the accessibility of roads by using pre-sample information, the benchmark being the mean road density in 1976.

The paper finds that, by itself, road capital had its own explanatory power for poverty incidence, which was not channeled through economic growth. Further, roads also improved the performance of production in poverty alleviation. Strikingly, the impact was bigger in good-access provinces than in bad-access provinces; that is, production in poverty alleviation did much better in good access provinces. The implication is that the accumulation of road capital has a nonlinear contribution to poverty alleviation. As road capital is accumulated, the link between economic growth and poverty reduction becomes stronger. This way, roads produce a more efficient linkage between them.

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