Indonesia is located in Southeast Asia and is the world’s largest archipelago state.
It is divided
into thirty-three provinces, each having its own governor.
Indonesia was once ruled by Japan,
but gained its independence after World War II.
Since establishing independence, Indonesia has
grown to be the third largest democracy (CIA).
Indonesia is active in the global market and is a
founder of the Association of Southeast Asian Nations, which aims to achieve economic growth,
strength, and peace among nations.
It is also a member of the United Nations, the World Trade
Organization, and the ASEAN free trade agreement.
Although Indonesia is still an emerging
country, it continues to pursue globalization.
Long Run Economic Growth
Since Indonesia established its independence after World War
II, the economy
has grown substantially.
Growth was extraordinary in the 1960s due to Indonesia’s natural
Exporting raw materials, like timber and oil, became a huge growth engine for the
Since Indonesia is surrounded by water, transporting goods by boat was simple and
lead to a rapid importing and exporting business.
Agriculture was also a growing sector. By the
early 1980s, growth began to plateau.
Employment was still rising and production was strong.
However, by the late 1980s, employment began to drop in agriculture (Asar 3).
In recent years,
the main engine of growth has been capital, followed by labor then total factor productivity.
Indonesia relies heavily on equipment to produce outputs.
Indonesia is beginning to invest more
in research and development and soon total factor productivity will probably become a huge
Currently, “Indonesia has been viewed as one of Southeast Asia's successful
highly performing and newly industrializing economies, following the trail of the Asian tigers”
Although it has grown greatly, Indonesia still struggles with issues, such as poverty and
Currently, the population living below the poverty line is 17.8% (CIA).
In the early
1990s, the President brought the issue of poverty to attention.
In doing so, poverty became a
public concern that was frequently discussed (Asra 2).
Since the 1970s, poverty has been
dropping in both urban and rural areas.
Abuzar Asar states that the drop in rural poverty is due
to the “development in the agricultural sector, financed in part by oil revenue…” (5). These
developments have lead to increased productivity and therefore an increase in revenues.
Another problem we see in Indonesia is inequality.
The government recognized the issue
at hand and attempted to make the income distribution more equal in 1978.
Equality was placed
as Indonesia’s number one priority (Asar 3).
Inequality was very bad in the 1970s, but began to
improve in the 1980s.
Unfortunately, in the 1990s, inequality began to grow in regard to
The Asian economic crisis in the late 1990s definitely increased both poverty and
Many jobs were lost and exports dropped drastically.
Indonesia has been improving its infrastructure over the years and is currently working