Does Corruption Caused Income Inequality in Indonesia?

Abstract

This paper investigated the effect on income distribution in Indonesia with related variables from the period 1984 to 2017 using annual data. Gross domestic product, inflation, corruption, foreign direct investment, and trade openness are the selected variables that have been chosen in this study. The study implements Autoregressive Distributed Lag (ARDL) estimation to investigate the short-run and long-run elasticities of the proposed model. The results from the Augmented Dickey-Fuller and Phillips-Perron tests of stationarity indicated that all the variables were non-stationary at the level I (o) but stationary at the first difference I (1). The finding based on long-run elasticities reveals that the result of the ARDL model exposes that all variables except for inflation have significantly influence inequality of income distribution in Indonesia. The government needs to initiate policies that will facilitate the improvement of the income distribution of their country.