Does Social Development affect Poverty? The Role of Participation in Income Dynamics in Indonesia 1993-2000

The objective of this study is to assess whether there are any effects on household income changes and poverty reduction in Indonesia from living in a community that has a more democratic system of decision making, or from being a member of a society with a higher degree of cooperation. We constructed a democracy index and a cooperation index and find that a household would have had two percentage points higher income growth from 1993 to 2000 if it had lived in a society with a high degree of cooperation compared to living in a society with the lowest degree of cooperation, if our results imply causality. This is substantial, since the average household per capita real income growth in the period 1993 to 2000 was 11 per cent. Moreover, our results suggest that cooperation may be of particular value for the poorest. We find that a poor household would have had six percentage points higher income growth from 1993 to 2000 if it had lived in a society with a high degree of cooperation compared to living in a society with the lowest degree of cooperation, even if the total income growth for this group was only around seven per cent during the period. The democracy index was found to be insignificant in all specifications and subsets.