Economic Growth, Education, and the Islamic Finance Paradox: Evidence from Income Inequality in Indonesian Provinces

Ali Rama, Azzahra Lutfiantono

Abstract


Purpose – This study aims to examine the determinants of income inequality in Indonesia, with a particular focus on the roles of economic growth, education, and selected socio-economic factors across provinces.

Methodology - The study employs panel data from 34 provinces in Indonesia over the period 2010–2023. A panel regression approach is utilized to analyze the effects of economic growth, education, Islamic bank financing, poverty, female labor force participation, and unemployment on income inequality.

Findings - The results indicate that economic growth significantly increases income inequality, suggesting that the benefits of growth are not evenly distributed across income groups. In contrast, education plays a significant role in reducing inequality by enhancing human capital and promoting social mobility. Islamic bank financing is found to have no significant effect on inequality. Poverty exacerbates income inequality, while female labor force participation and unemployment do not show statistically significant impacts.

Implication - This study is limited to provincial-level data and may not capture micro-level disparities. Future research could incorporate household-level data and explore additional institutional variables.


Keywords


Income inequality; economic growth; Islamic bank financing; education

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DOI: https://doi.org/10.17509/rief.v9i1.97806

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