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Effect of Openness and Economic Growth on Poverty Alleviation: Lesson Learnt from Taiwan and Indonesia to Achieve SDGs Goal

Effect of Openness and Economic Growth on Poverty Alleviation: Lesson Learnt from Taiwan and Indonesia to Achieve SDGs Goal

Rahutami, Angelina Ika Associate Professor

2019 Taiwan Fellowship Scholar

Field of Study:

No:

Date:2019/9/9

Abstract:

One of SDGs goal is poverty reduction. This goal is the first objective of the SDGs. Every economy should achieve this goal in 2030. Some previous studies show that economic openness has a significant influence on poverty reduction, some researches explain that the relationship is significant but is indirect, and partly shows there is a different magnitude of the short-run and long-run impact of the economic openness to poverty reduction. This study proposes openness as an important policy option to reduce poverty through economic growth. The research objectives are to describe the condition of poverty and macroeconomic in Taiwan and Indonesia and to analyze how openness and growth in Taiwan and Indonesia have contributed to its poverty reduction. This study applies the Error Correction Method (ECM) for analyzing the short and long run condition. The research result shows that the character and nature of poverty in Taiwan and Indonesia are very different. Based on the regression results, it appears that FDI is not a factor that drives poverty reduction. International trade is a more dominant factor compared to foreign investment. The role of government in both countries is a major factor in reducing poverty. Spending on social welfare, or even the role of government in reducing income disparities, needs special attention.