Jejak Vol 12 (1) (2019): 238-252 DOI: https://doi.org/10.15294/jejak.v12i1.

19518

JEJAK
Journal of Economics and Policy
http://journal.unnes.ac.id/nju/index.php/jejak
Economic Growth and Poverty: The Mediating Effect of
Employment
Sodik Dwi Purnomo1,Istiqomah2

12
Faculty of Economics and Business, Universitas Jenderal Soedirman

Permalink/DOI: https://doi.org/10.15294/jejak.v12i1.19518

Received: October 2018; Accepted: January 2019; Published: March 2019

Abstract
The results of previous research on the relationship between economic growth and poverty have shown inconclusive results. This
could be due to the fact that the relationship between these variables is indirect. Therefore, this study tries to introduce
employment opportunity as a mediating variable. In addition, the authors also examined the effect of control variables consisting
of dependency ratio, education, and infrastructure. The data used in this study are panel data of 6 provinces on Java Island in the
period of 2000-2017. The methods used in this study are path analysis and multiple linear regression. The results show that
employment opportunity perfectly mediates the relationship between poverty and economic growth. This study also found that
dependency ratio and education had a significant effect on poverty, while infrastructure had a negative, but insignificant effect on
poverty. The perfect mediating effect implies that economic growth will reduce poverty only if the economic growth is able to
generate employment opportunities. These findings imply the importance of inclusive growth that gives access to the poor to
work and business opportunities.

Key words : Economic Growth, Employment Opportunities, Poverty, Path Analysis

How to Cite: Purnomo, S., & Istiqomah, I. (2019). Economic Growth and Poverty: The Mediating Effect of
Employment. JEJAK: Jurnal Ekonomi dan Kebijakan, 12(1), 238-252. doi:https://doi.org/10.15294/jejak.v12i1.19518

 Corresponding author : p-ISSN 1979-715X

Address: Jl. Profesor DR. HR Boenyamin, Purwokerto,
Banyumas e-ISSN 2460-5123
E-mail: istiqomahsubechan@gmail.com
 JEJAK Journal of Economics and Policy Vol 12 (1) (2019) : 238-252 239

INTRODUCTION results of these studies is that the relationship

between growth and poverty does not occur
The purpose of development is poverty
directly. This means that economic growth
reduction that can be achieved through
does not necessarily reduce poverty. The
economic growth (Kakwani, Neri, and Son,
authors supposed that there are intervening
2010). This is based on the theory of trickle-
variables that mediate the relationship
down effect that was first triggered by Arthur
between economic growth and poverty. In
Lewis (1954) and developed by Ranis and Fei
this study, the authors examined whether
(1968). This theory became one of the topics
employment opportunity mediate the
in the literature on economic development in
relationship between economic growth and
least developed countries/LDCs) in the 1950s
poverty.
and 1960s (Aghion & Bolton, 1997). The
Logically, one of the causes of poverty is
trickle-down effect theory explains that the
unemployment. In order to alleviate poverty,
progress of a group of people will
economic growth must be able to create jobs.
automatically trickle down, thus creating jobs
Empirical facts show that economic growth is
and economic opportunities which will
often driven by capital-intensive sectors that
eventually grow various conditions in order to
do not provide employment for the
create even distribution of economic growth
community and thus have no impact on
(Todar & Smith, 2011).
poverty alleviation. The notion of the
Economic growth can have a positive
importance of the role of employment
impact on poverty reduction if economic
opportunities in the relationship between
growth takes place in favor of the poor
economic growth and poverty alleviation is
(Siregar & Wahyuni, 2007). Kakwani, Neri, &
based, among others, on the arguments of
Son (2010) also states that economic growth is
Jonaidi (2012) and Awandari & Indrajaya
a necessary condition for poverty reduction,
(2016), that high economic growth should
That is, growth should spread in each income
provide a lot of employment. Jonaidi (2012)
group, including the poor (growth with
explains that employment opportunities play
equity). Previous studies show inconclusive
an important role in the effect of economic
results. Some researchers such as Suliswanto
growth on reducing poverty. In addition,
(2010), Ramdani (2015), and Moore &
Merdekawati Budiantara (2013) employment
Donaldson (2016) found that economic
opportunities and poverty have a very close
growth had a negative effect on poverty.
relationship. This study is an empirical study
This means that the increase in
in 6 provinces in Java. Java Island was chosen
economic growth is followed by a decrease in
because the number of poor people in Java is
poverty. However, other researchers such as
the highest compared to other islands in
Afzal, Malik, Begum, Sarwar, & Fatima (2012),
Indonesia. On the island of Java, there are
Iswara (2014), and Berardi & Marzo (2017)
three provinces with the highest number of
found that economic growth had no effect on
poor people, namely West Java, East Java and
poverty. Thus research that can explain the
Central Java. Table 1 shows the number of
differences in the findings above is needed.
poor people by islands in Indonesia.
One explanation for the differences in the
240 Sodiq Dwi Purnomo & Istiqomah, Economic Growth and Poverty

Table 1. Number of poor people based on decreased, while the poverty rate in DKI
islands in Indonesia 2018 Jakarta and Banten has fluctuated during the
Poor
period 2008-2017. Economic growth in all
population Percentage
No Islands provinces fluctuated during the same period.
(thousand (%)
persons) In addition to examining the mediating
1 Java 13,265.19 51.40 role of employment opportunityon economic
2 Sumatera 5,949.05 23.04 growth, this study also analyzes the effect of
Sulawesi and
3 2,445.01 9.57 dependency ratio, infrastructure and
Maluku
Bali and Nusa education on poverty.
4 2,044.73 7.92
Tenggara The higher the dependency ratio, which
5 Papua 1,130.49 3.37 means the fewer productive age population,
6 Kalimantan 977.73 3.78
the less the output of an economy, resulting
Indonesia 25,812.19 100.00
in higher poverty. According to Chaudhry
Source : Central Bureau of Statistics, 2018
(2009) poverty is influenced by the
population dependency ratio. This is because
The following is a description of the
the higher the value of population
relationship between economic growth and
dependency, the higher the burden of the
poverty rates in 6 provinces in Java. In general
productive population to bear the
the poverty rate of 4 provinces (West Java,
unproductive ones.
Central Java, DIY and East Java) has

Figure 1. Economic Growth and Poverty Rate by Province in Java

Source : Central Bureau of Statistics, 2018
 JEJAK Journal of Economics and Policy Vol 12 (1) (2019) : 238-252 241

This is supported by the findings of dependency ratio, infrastructure, and

Gupta, Bongaarts, and Cleland (2011) which education), and one intervening variable
state that increasing dependency ratio will (employment opportunity). This study uses
increase the proportion of the population secondary data of 6 provinces in Java Island
living in poverty. Infrastructure is built with during the period 2008-2017 from Central Bureau
the aim, among others, to facilitate the of Statistics. Poverty is measured by poverty rate
mobility of people, goods and services, so that (in percent). Economic growth is measured in
it is expected to have an impact on poverty percentages. Dependency ratio is measured as a
reduction. According to Perkins, Fedderke, & ratio of non-productive age (<15 and ≥ 65 years)
Luis (2005) and Seetanah, Ramessur, & Rojid divided by the population of productive age (15-
(2009) infrastructure development is needed 64 years) multiplied by 100 percent. The length
to support business, so that infrastructure of the asphalt road is used as a proxy for
improvements are expected to bring infrastructure. Education is measured by the
prosperity and increase people's income and percentage of workers with high school
reduce poverty. education and above.
Education is one of human capital. To answer the first research objective, the
Investment in human capital (education, author used path analysis, while the second
skills, health) is able to increase productivity research objective was addressed with multiple
and income, leading to higher welfare linear regression using panel data of 6 provinces
(Ogundede, Akingbade, & Akinlabi, 2012). in Java with during the period of 2008 - 2017. For
According to Zhang (2014) education is the path analysis, panel data is used to analyze the
first indicator in alleviating poverty. This is variable economic growth, employment
because the higher level of education of the opportunity, and poverty, while multiple linear
community, the greater the chances of getting regression used the variables of poverty,
a job and decent income. dependency ratio, education, and infrastructure.
Based on the problem formulation, the There are three approaches in the
purposes of this study are 1) to examine calculation of panel data regression models,
whether employment opportunities mediate namely Pooled Ordinary Least Square/PLS, Fixed
the effect of economic growth on poverty and Effect Method (FEM), and Random Effect
2) to examine the effect of the dependency Method /REM. There are two tests to determine
ratio, infrastructure and education on whether PLS, FEM or REM is the most
poverty. appropriate modelto estimate panel data
regression parameters.
RESEARCH METHOD
The choice between PLS and FEM
This research is a causal associative wasdetermined through the Chow test or the
study between independent variables on Likelihood Test Ratio. To find out whether the
dependent variable by entering an PLS model is better than the FEM model it can
intervening variable. In this study there is one be done by looking at the significance of the FEM
dependent variable (poverty),four model with the F test.
independent variables (economic growth, H0 : Pooled Least Square/PLS model
242 Sodiq Dwi Purnomo & Istiqomah, Economic Growth and Poverty

Ha : Fixed Effect Method/FEM model the change in the dependent variable . The
If the p-value or probability of the chi- pattern of the direct relationship between
Square statistic or Cross Section random is <α, variables without mediating variables can be
H0 is rejected, so Fixed Effect Method is seen in Figure 2.
selected.
The choice between Fixed Effect or
Random Effect was determined through the
Figure 2. Regression model without mediating
Hausman test. Hausman test evaluation used
variable
chi square with degree of freedom as many as
the number of independent variables.
The pattern of relationships between
H0 : Random Effect Method/REM
variables through mediating variable can be seen
Ha : Fixed Effect Method/FEM in Figure 3.
If the p-value or probability of the chi-
Square statistic or Cross Section random is <α,
H0 is accepted so that the model follows
random Effect Moded.
The choice of which model is the most
appropriate between Pooled Least Square
(PLS) or Random Effect Model (REM) was Figure 3. Model of path analysis of the effect of
determined through LM test. This LM test is economic growth on poverty through
based on the distribution of chi-squares with employment opportunity
a degree of freedom equal to the number of
independent variables.
The effect of mediation was tested by the
H0 : Common Effect Model
causal step method developed by Baron and
Ha : Random EffectModel
Kenny (1986). The steps in using the causal step
If the LM value is greater than the
method are regressing the independent variable
critical value of the chi-squares statistic, we
(X) on the dependent variable (Y), regressingthe
reject the null hypothesis, which means that
independent variable (X) on the mediating
the right estimate for the panel data
variable (Z), regressing the independent variable
regression model is the Random Effect
(X) and the mediating variable (Z)on the
method.
dependent variable (Y), and drawing the
Path analysis is used to examine the
conclusion whether the mediating variable
direct relationship of the independent
mediates perfectly or partially.
variable to the dependent variable and the
The above steps are translated into the
indirect relationship through the intervening
following equations:
variable (Sudaryono, 2011). Mediatiing or
Equation I : 𝑌𝑖𝑡 = 𝛼 + 𝛽1 𝑋1𝑖𝑡 + μit
intervening variable is an intermediate
Equation II : 𝑍𝑖𝑡 = 𝛼 + 𝛽1 𝑋1𝑖𝑡 + μit
variable that lies between the independent
Equation III : 𝑌𝑖𝑡 = 𝛼 + 𝛽1 𝑋1𝑖𝑡 + 𝛽2 𝑍2𝑖𝑡 + μit
and dependent variables, so that the
independent variable does not directly affect
 JEJAK Journal of Economics and Policy Vol 12 (1) (2019) : 238-252 243

Z performs as a mediating variable if it meets (Best Linear Unbiased Estimator) from the
the following criteria: regression model obtained from the Ordinary
In equation I, the independent variable Least Square method. By fulfilling these
(X) affects the dependent variable (Y). assumptions, the results obtained can be more
Equation II, the independent variable (X) accurate and close to or equal to reality, where
affects the variable that is assumed to be the the basic assumptions are known as classic
mediating variable (Z), and equation III, the assumptions. To get the results of fulfilling these
variable that is assumed to be the mediating characteristics, classical assumptions were tested
variable (Z) affects the dependent variable which included the normality test,
(Y). The following are the criteria to conclude multicollinearity test, and heteroscedasticity
whether it is a perfect or partial mediation test, while the aoutoorrelation test was not
(Suliyanto, 2011). Z performs perfect needed in this study. This is because the
mediation if after entering Z, the effect of X on autocorrelation test is only used for time series
Y which was significant (before entering the data and this study uses panel data, namely a
variable Z) becomes insignificant after combination of cross section data and time series
entering Z into the regression equation (Gujarati, 2012).
model.Z performs partial mediation if after
RESULTS AND DISCUSSION
entering Z, the effect of X on Y which was
significant (before entering the variable Z) The following is a regression equation in
remains significant after entering Z into the model I that shows the effect of economic growth
regression equation model. The multiple on poverty with fixed effect model.
regression can be expressed in the following Y = 10.640 – 0.027X + e
equation. Regression model I shows that the
𝑇𝐾𝑖𝑡 = 𝛼 + 𝛽1 𝐷𝑅1𝑖𝑡 + 𝛽2 𝑃𝐷𝐷𝐾2𝑖𝑡 + 𝛽3 𝐼𝑁𝐹3𝑖𝑡 + significance value of the economic growth (X) is
μit 0.036 greater than the error probability of 0.05.
Information: These result indicates that economic growth (X)
a : intercept has a significant effect on poverty (Y).The value
TK : poverty rate of R square in the regression model I is 0.87. This
PJ : length of road shows that the effect of economic growth (X) on
PDDK : education poverty (Y) is 87 percent, while the remaining 13
DR : dependency ratio percent is the influence of other variables not
β1,β2,β3 : regression coefficients included in the model.
i : cross section of provinces on Java
t : time series data 2010-2015
μit : error components of t for cross
section unit
The next stage is the classic assumption Figure 4. Path diagram of model I
test where in the use of regression, there are
several basic assumptions that can produce The following is a regression equation in
the best unbiased bias estimator or BLUE model II that shows the relationship of economic
244 Sodiq Dwi Purnomo & Istiqomah, Economic Growth and Poverty

growth and employment opportunity with on the poverty rate (Y) of 92 percent, while the
random effect model. remaining 8 percent is the influence of other
Z = 15.856+ 0.453X + e variables not included in the model. Thus the
Regression model II shows that the path diagram of model III is obtained from the
significance value of economic growth (X) of combination of path I and II.
0.009 is smaller than the error probability of
0.05. This result indicates that the economic
growth (X) has a significant positive effect on
employment (Z).The value of R square in
regression model II is 0.51. This shows that the
effect of economic growth (X) on employment
(Z) is 51 percent, while the remaining 49
percent is the influence of other variables not
included in the model.
Thus the path diagram of model II is Figure 6. Path diagram of model III
depicted as follows.
Based on hypothesis testing criteria, before
entering the mediating variable (employment
opportunity), the effect of economic growth on
poverty is significant and after the mediation
Figure 5. Path diagram of model II variable is entered into the equation, the
coefficient turned into insignificant. So the
The following is the regression equation results indicate that employment opportunity
in model III which shows the relationship perfectly mediates the relationship between
between economic growth and employment economic growth and poverty.
opportunity with fixed effect model. Theoretically, efforts to alleviate poverty
Y =218.910–13.133Z – 0.069X + e3 require quality economic growth. Quality
The regression model III shows that the economic growth can be realized with policies to
significance value of the employment expand employment opportunities and
opportunity (Z) of 0,000 is smaller than the maximize productive investment in various
error probability so that employment economic sectors. Roemer and Gugerty (1997)
opportunity has a significant effect on provided strong support that GDP growth per
poverty. However, the significance value of capita is a strong force in reducing poverty. Ten
economic growth (X) is 0.067 greater than the percent GDP growth per year is associated with
error probability of 0.05, so that economic ten percent income growth for the poorest 40
growth (X) does not significantly influence percent of the population. For the poorest 20%,
poverty (Y).The value of R square in the elasticity is 0.921, meaning that 10% GDP
regression model III is 0.92. This shows that growth is associated with 9.21% income growth.
the effect of employment opportunity (Z) and These results provide strong support for the
economic growth (X) has a significant effect proposition that GDP growth per capita can and
 JEJAK Journal of Economics and Policy Vol 12 (1) (2019) : 238-252 245

is usually a strong force in reducing poverty. reduce the number of poor people is quality and
However, the problem so far has been the equitable growth. Investment as a contributor to
paradox Indonesia's economic development. growth should be carried out in the form of
For example, based on BPS data, although the accelerating the accumulation of human capital
economic growth rate after the 1997 crisis through education and training, as well as the
tends to increase, unemployment also development and improvement of rural
increases. In 2005 Indonesia's economic infrastructure. Requires significant government
growth rose significantly from 5.03 percent in intervention and private participation (Siregar,
2003 to 5.69 percent in 2005. However, this 2006).
increase in economic growth has not been The combined scenario of increasing
able to create jobs and absorb additional labor education and health expenditures accompanied
force, as a result the number of unemployed by an increase in government capital
increased from 10.25 million (9.56 percent) in expenditure has the greatest impact in reducing
2003 to be 10.85 million people (11.24 percent) poverty in Indonesia (Mustaqimah, Hartoyo, and
of the total workforce from the previous year Fahmi, 2017). Development strategies that do not
(Siregar, 2007; Jonaidi, 2012). only prioritize physical development, but also
Siregar (2006) argued that economic prioritize improving the quality of human
growth is a necessity condition for poverty resources should be used as one of the regional
reduction. The adequate condition is that development strategies in Indonesia, because the
growth is effective in reducing poverty. This impact can be greater in reducing poverty. Given
means that the growth should absorb the important role of education in improving the
employment in each income group, including quality of human resources, the government
the poor population. Directly, this means that should make improvements to the education
growth needs to be ensured to occur in sectors system in Indonesia (Mustaqimah, Hartoyo, and
where the poor work (agriculture or labor- Fahmi, 2017).
intensive sectors). Indirectly, it means that This study explains the alternative
the government needs to be effective to mechanism through which the trickle down
redistribute the growth benefits that may be occurs. While Aghion et al. (1997) focused on
obtained from the modern sector such as borrowing and lending in the capital market: as
services and capital-intensive manufacturing. more capital is accumulated in the economy,
The new growth theory emphasizes the more funds may be available to the poor for
importance of the role of government, investment purposes, this study argues that
especially in increasing the development of when capital accumulates as income grows,
human capital, improving the quality of more employment will be available, which in
human resources indicated by the increase in turn will reduce poverty.
knowledge and skills. Increased knowledge This research is in line with the findings of
and expertise will be able to encourage an Jonaidi (2012) which explain that employment
increase in work productivity, leading to help opportunity plays an important role in
reduce te poverty rate (Suliswanto, 2010). determining the effect that occurs between
Therefore, the economic growth needed to economic growth and a decrease in the number
246 Sodiq Dwi Purnomo & Istiqomah, Economic Growth and Poverty

of poverty. In addition, Merdekawati & growth can reduce poverty, even increase in
Budiantara (2013) explain that employment income inequality resulted from economic
opportunity and poverty rate have a very close growth does not interfere with the effectiveness
relationship. According to Jonaidi (2012), and of poverty reduction. This means that economic
Awandari & Indrajaya (2016), economic growth has an impact on income inequality but
growth must be balanced with an increase in the income inequality does not have a significant
the number of employment opportunities. impact on poverty rate. Despite income
According to Dollar and Kraay (2001) inequality, this does not affect the effectiveness
economic growth will be able to provide of poverty reduction.
benefits to the poor if economic growth is Based on the results of the Langrange
accompanied by appropriate policies, such as Multiplier (LM) test, the LM value of 2693.727 is
law enforcement, fiscal discipline, trade greater than the chi-squares value of 7.81, which
openness, and strategies in alleviating means that the appropriate estimation for the
poverty. In addition, the World Bank panel data regression model is the random effect
provides policy recommendations, namely method. The following table shows the estimated
encouraging economic growth to create regression results with the random effect
employment to alleviate poverty (World method using the Eviews 9 application.
Development Report, 2010).
Table 2. Results of regression analysis
However, not all studies found a
Variables Coefficient t-Stat Prob.
negative relationship between economic
Constant 19,58825 4.429971 0.0000
growth and poverty. Some findings also
DR 0,016123 7.206975 0.0368
conclude that economic growth is positively
-
related to poverty. Ahluwalia and Chenery EDU -0,268095 0.0000
7.065054
(1974) found that that rapid economic growth
INF -7.88E-05 1.100900 0.2757
in underdeveloped countries provide little
R-squared 0.765730
benefit (about one third of the population).
F-statistic 17.21212
The failure of growth in reducing poverty is
F-Table l3.16
due to failure of the trickle down effect. So
T-Table 2.00324
poverty prevails even though economic
Source: data processed with Eviews 9
growth increases every year. This means that
the relationship between economic growth The first classic assumption test is
and poverty is not a causality relationship normality testing to find out whether data is
because the increase in economic growth does normally distributed. Normality can be detected
not absolutely reduce poverty. There are using the Jarque-Berra test (JB test). The JB test
many conditions that must be fulfilled to is a normality test based on the kurtosis and the
generate inclusive economic growth in terms skewness coefficients. In JB normality test can be
that economic growth can be enjoyed by all seen from the JB probability value, if the JB
people. In addition, Hidayat (2007) found that probability value is> 0.05 then the data is
economic growth can increase income normally distributed, conversely the probability
inequality but on the other hand economic
 JEJAK Journal of Economics and Policy Vol 12 (1) (2019) : 238-252 247

value is <0.05 then the data is not normally auxiliary regression of the dependency ratio,
distributed. education, and < R2 of regression model value.
Heteroscedasticity test is conducted to This can be interpreted that the client test shows
test whether in the regression model variance no multicollinearity.
inequalities occur from residual of one Table 2 shows that the dependency ratio
observation to another observation. Testing (DR) has a positive and significant effect on
to determine the presence of poverty on Java. The coefficient of 0.016 means
heteroscedasticity can be done by Glejser test that if the DR increases by 1 percent, it will
(Gujarati, 2012). Heteroscedasticity test using increase poverty rate by 0.016 percent. According
the Glejser test shows that the chi-square to Chaudhry (2009) the higher the dependency
probability value is 0.213. Based on the criteria ratio, the higher the burden on the productive
that the chi-square probability value is greater population must be to bear the unproductive
than the significance level (α = 0.05) then the population. In addition, Gupta, Bongaarts, and
above test does not show heteroscedasticity. Cleland (2011) found that the dependency ratio
Multicollinearity test is used to will increase the proportion of the population
determine and find out whether there is a living in poverty. In addition, high birth and
relationship between two or more death rates have implications for the high
interrelated variables in a model. Client dependency ratio.
detection is done by regressing an Another factor that also influences poverty
independent variable with another is the population dependency ratio. The higher
independent variable. the percentage of population dependence, the
higher the burden on the productive population
Table 3. Results of Multicollinearity Using to bear the unproductive population. This is
Client Test supported by the finding of Knowles (2002),
Independent R2auxiliary R2regression
which states that increasing dependency ratio
variables regression model
will increase the proportion of the population
Dependency
0.368 0.765 living in poverty. High birth rate has
Ratio
implications for the high dependency ratio.
Education 0.534 0.765
Education (EDU) has a negative and
Infrastructure 0.536 0.765
significant effect on poverty levels on Java. The
Source: Data processed, 2019
coefficient value is -0.268, which means that
when number of senior high school graduates
The rule of thumb is by comparing the
and bove increasesby 1 percent, it will reduce
R2 model value with R2 of the auxiliary
poverty by 0.268 percent. This result supports
regression value. If the auxiliary R2 value is
the findings of Ogundede, Akingbade, &
greater than the R2 of the regression model,
Akinlabi (2012 that education can reduce poverty
then the model contains the symptoms of
directly, namely by increasing productivity for
multicollinearity. If the auxiliary regression R2
the poor and improving community
value is smaller than the R2 model, then the
opportunities to obtain employment with better
model does not contain the symptoms of
wages. The result also supports the previous
multicollinearity.Table 2 shows that the R2 of
248 Sodiq Dwi Purnomo & Istiqomah, Economic Growth and Poverty

studies by Tarabini & Jacovkis (2012) and productivity will get better welfare, which is
Zhang (2014) that the level of education is an shown through increased income and
important factor affecting poverty. This is consumption.
because the level of education will affect the The low productivity of the poor can be
distribution of income which in turn will also caused by the low access of the community to
affect poverty. The higher the level of obtain education (Sitepu and Sinaga, 2004). Thus
education, the distribution of income will be it is expected that this condition will advance the
evenly distributed, so that poverty can be economy and reduce poverty. Center for the
reduced. Higher education results in better Study of Living Standars (2001) states that
work productivity that will provide greater education is an important element to combat
income. The low level of education causes the poverty, empower women, and save children
choice of work to be limited to low-paid jobs. from exploitation. Likewise, a statement from
Susanto et al. (2018) explained that UNICEF said that education is an important
education plays an important role in one's investment for obtaining decent jobs with high
well-being in a variety of ways. Education can wages.
increase the ability of the population to obtain The new growth theory emphasizes the
and use information, deepen understanding importance of the role of government, especially
of the economy, expand productivity, and give in increasing the development of human capital
people the choice of whether to act as and encouraging research and development to
consumers or producers. improve human productivity. Empirical studies
The theory of the vicious cycle of show that investing in education will be able to
poverty proposed by Nurkse (in Kuncoro, improve the quality of human resources as
2009) explains that it begins with the demonstrated by an increase in a person's
existence of low productivity, resulting in low knowledge and skills. The higher the level of
income generation. Low productivity is education of a person, the knowledge and
closely related to the low quality of human expertise will also increase so that it will
resources. Therefore, in order to improve encourage an increase in work productivity. The
human resources, education is needed. It low productivity of the poor can be caused by
cannot be denied that education is one of the their low access to education.
main keys in increasing economic growth and The theory of human capital says that the
reducing poverty. This is because education quality of human resources is obtained from the
itself improves knowledge and various skills quality of education, health, and other human
needed to improve welfare, without capacities that can increase productivity.
knowledge and skills, the community cannot Education plays a key in shaping the ability of a
improve welfare and thus, living in poverty country to absorb modern technology and to
(Iswara, 2014). Education improve one's develop capacity to create sustainable and
knowledge and skills. The higher the level of capable growth and development in reducing
education, the knowledge and expertise will poverty (Todaro & Smith, 2011).
also encourage increased labor productivity. The development of human capital can
In the end someone who has high increase productivity and growth, but also plays
 JEJAK Journal of Economics and Policy Vol 12 (1) (2019) : 238-252 249

a central role in influencing income productive so that they can increase income.
distribution in an economy. The statement Thus education can break the chain of poverty
has implications for encouraging and eliminate social exclusion, then improve the
governments to create centralized poverty quality of life and realize community welfare.
reduction policies or strategies on the Infrastructure has a negative and
importance of human capital development. insignificant effect on the level of poverty on
Sachs (2005 explains that human capital is not Java. The longer the asphalt road in each
only identified as a key contributor to growth province on Java does not guarantee poverty
and poverty reduction, but also encourages reduction. This research is in line with Sari's
development goals to improve human findings (2011) which explains that infrastructure
freedom in general. In addition, the focus of development does not have a significant impact
global developments currently recorded in on poverty. This may be due to the fact that
the millennium development goals has also infrastructure alone does not necessarily reduce
positioned improvements in quality human poverty. Infrastructure development in this
capital as the main priority by making it easier research proxy with long asphalt roads is
for people to access education, health, and so expected to facilitate the mobility of people and
on. goods. Thus opening access to work or business.
According to Sachs (2005), one of the However, this requires supports such as asset
mechanisms in poverty alleviation is the ownership and quality human resources.
development of human capital, especially Seetanah et al. (2009) argued that transport and
education and health, which is contained in other infrastructural subsidies are widely used to
his book entitled The End of Proverty help the poor, but it is difficult to limit them to
Philosophy. Sen, the notion of libertarianism, the poor. Hence other means of increasing access
Nosick and Sachs, presented six poverty to the poor must be identified.
alleviation packages, namely: 1) human Road infrastructure does not only support
capital, especially in health, nutrition, and production activities that will create output and
skills acquired through education and employment opportunities, but the existence of
training, 2) business capital facilities needed infrastructure also affects the efficiency and
in transportation for agriculture, industry and smoothness of economic activities (Nuritasari,
service. 3) infrastructure: roads, electricity, 2013). Infrastructure is very important in
drinking water. Sanitation, and so on, 4) supporting economic development because good
natural capital in the form of agricultural infrastructure can increase effectiveness and
land, biodiversity, 5) capital of public efficiency for both business and society. With
institutions such as commercial law, judicial adequate infrastructure, the costs of production,
law, government services, and 6) knowledge transportation, communication and logistics are
capital in the form of know-how of science getting cheaper, the number of production
and technology that increase productivity increases, operating income increases, so it can
which can increase natural capital. With good increase people's income. The availability of
education, everyone has the knowledge and infrastructure also accelerates equitable
skills, has the choice to get a job, being more development infrastructure development that is
250 Sodiq Dwi Purnomo & Istiqomah, Economic Growth and Poverty

tailored to the needs of each and between facilitating productivity through the provision of
regions, thus encouraging investment, new adequate facilities and infrastructure.
employment, and increasing income and Infrastructure, besides having an influence on
welfare of the community thereby reducing economic aspects, also has an impact on social
poverty (Wahyuni, 2009). Amalia, Madris, & aspects, including improvement of people's
Razak (2015) found that government welfare such as increased community welfare,
expenditure for infrastructure development measured by the reduction of poverty, equity and
reduces poverty. Road infrastructure will redistribution of income and mitigation in
affect the mobility of goods and services, so environmental degradation (Reungsri, 2010).
that it will accelerate the process of Aschauer (1989) states that public
production and distribution and will increase investment in infrastructure is very important as
income and welfare of the community thereby one of the supporting sources of economic
reducing poverty. growth. Aschauer examines the relationship
Infrastructure is very important for between aggregate output and the stock and flow
productivity and growth. Haris (2009) states of government spending and concludes that core
that infrastructure is the driving force of infrastructure such as roads, toll roads, airports
economic growth. Allocated from public and and mass transportation systems are important
private financing, infrastructure is seen as a government roles in increasing growth and
locomotive for national and regional increasing productivity.
development. From macroeconomic
CONCLUSION
perspective, the availability of infrastructure
services affects the marginal productivity of Based on the results of the analysis and
private capital, whereas in the microeconomic discussion above, it can be concluded that the
context, the availability of infrastructure effect of economic growth on poverty reduction
services has an effect on reducing production is not direct. Employment opportunity perfectly
costs.Reungsri (2010) states that mediates the effect of economic growth on
infrastructure as a representation of public poverty on Java. This means that economic
investment has an influence on two aspects, growth can only reduce poverty when the growth
namely economic and social aspects. is able to increase employment opportunity.
Infrastructure investment is a public Thus it is necessary to create human resources
investment that has an impact on economic both in quantity and quality that can support
growth. The government can use this economic growth. In addition, dependency ratio
infrastructure investment as a tool to increase and education have a significant effect on
private investment. According to the poverty, while infrastructure has a negative and
Keynesian economic paradigm, investment insignificant effect on poverty on Java. Therefore,
can stimulate government spending which controlling the composition of the population
then has an impact on crowding out and needs to be considered by maintaining a balance
crowding private investment. Infrastructure is between productive and unproductive age
not a factor that can directly affect economic groups. Education also has a significant effect on
growth. Infrastructure affects growth by poverty reduction.
 JEJAK Journal of Economics and Policy Vol 12 (1) (2019) : 238-252 251

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