Economic Growth, Appropriate Policies and Poverty Reduction in a Developing Country

This article attempts to analyse the impact of economic growth on poverty reduction in Indonesia during the New Order (NO) era (1966–98). It also discusses the need of ‘anti-poverty’ versus ‘pro-poor development’ policies and programmes for poverty reduction. The paper addresses some long-standing questions in development economics. First, does data from Indonesia support the notion that growth is good for the poor? Second, does growth in agriculture matter for poverty reduction? Third, which one was the most responsible for the significant decline in poverty during the NO era: ‘anti-poverty’ or ‘pro-poor development’ policies? Through simple statistical analyses, the study shows that economic growth is positively correlated with poverty reduction, and the output or income growth in agriculture appears to have the strongest effect on poverty reduction than other sectors. This finding suggests and supports the general notion that the agricultural growth is essential for poverty reduction. This study also concludes that ‘anti-poverty’ programmes have been of minor importance in alleviating poverty compared with macroeconomic performance accompanied by ‘pro-poor development’ policies.