The Impact of Price Changes on the Poor in Nanggroe Aceh Darussalam Province, Indonesia: A Case Study on Oil Prices

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• Publisher: Cuvillier Verlag
• Year: 2009
• Print ISBN: 9783869550954
• eBook ISBN: 9783736930957
• Edition: 1

The phenomenon of oil prices increase due to oil subsidy reduction is a crucial and dilemmatic issue for developing countries such as Indonesia. This is because the magnitude of the resulting effects of rising oil prices is not merely related to the shrinkage of the government expenditure burden in the future, but also triggers off a setof negative consequences on all aspects of economic sectors. Moreover, it also directly orindirectly engenders a tricky situation on socio-economic households in term of welfarereducing both in rural and urban regions. Most of the theoretical viewpoints are tightlyhighlighted that an increase in oil prices will induce elevated living cost for certainhousehold groups in the society (the living standards of both poor and vulnerable household groups mostly at middle income households fall down). It implies that the impact of oil prices increase will concurrently push the inflation rate to a higher andhigher level (spiral inflation), the purchasing power of households as indicated by the rate of households' real income worsens in the near future below a certain threshold (povertyline). At long last those with little income will be trapped into the poverty circle (viciouscircle of oil prices increase). The households are openly vulnerable to be trapped intopoverty and the poor who are already in the poverty trap will be the poorest (chronicpoverty). There is an unambiguous relationship between oil prices increase as one of theurgent government policies and the households' real income decline. This study attemptsto investigate the impact of oil prices increase on the poor at regional level in particular inNanggroe Aceh Darussalam (NAD) province. To get an in-depth understanding of thisissue, the study utilizes three approaches to capture the micro and macro impact of oilprices increase on the poor: the Descriptive Analysis Approach (DAA) supported by theprimary data from field research, the Social Accounting Matrix (SAM) approach as wellas the Computable General Equilibrium (CGE) model by comparing two periods of SAMdata (2002 and 2005). It is also important to underline that the oil prices will be morefocused on this study is solely three types of oil prices: gasoline, diesel, and keroseneprices.Four specific conclusions of the study are as follows: (1) The main socio-economiccharacteristics of the poor being vulnerable to the oil prices increase are greaterhousehold size, profession as a farmer, lower education, and unskilled labor (2)Government's action to reduce subsidy on oil will generate oil stock scarcity which picksup the pace of the oil prices in the community exceeding the government oil pricedeclaration throughout the scarcity; (3) The oil prices increase highly leads to inequalityin income distribution across institutions as indicated by the different accountingmultiplier and the real income alteration of institution, particularly rural and urbanhouseholds which is caused by larger indirect effect than direct effect. (4) In general, thedepressing shock of the oil prices increase highly affects real income of all householdgroups in urban areas, but at the end of the impact process it will be negativelyexperienced by the households in rural areas through higher inflation rate, especially thepoorest and poor households. Afterwards, they are openly trapped into chronic poverty.In addition, rural middle-income households are more vulnerable to poverty than those inurban areas. Therefore, these are key reasons why the poverty rate in Aceh still remains athigh level every year.

Table of contents

• TABLE OF CONTENTS
• 1. INTRODUCTION
• 2. PROVINCIAL BACKGROUND
• 3. PREVIOUS STUDIES AND THEORETICAL REVIEW
• 4. RESEARCH METHODOLOGY
• 5. RESULTS AND DISCUSSIONS
• 6. CONCLUSIONS AND RECOMMENDATIONS
• REFERENCES
• APPENDICES