Impact of selected macroeconomic on poverty alleviation in Indonesia: Evidence from NARDL approach

This paper investigates the empirical relationship between economic growth, inflation, foreign direct investment (FDI), and trade on Indonesia’s poverty reduction. The analyzed data period is 1970–2022 using the nonlinear autoregressive distributed lag (NARDL) model. In the long term, positive and negative shocks to economic growth and FDI significantly affect poverty in Indonesia. Increased growth and FDI will have a significant effect on poverty alleviation. Likewise, when there are negative shocks from economic growth and FDI, it will increase the percentage of the poverty rate. Meanwhile, the inflation variable has a different effect on the conditions of positive and negative shocks. In positive shocks, inflation has a positive and insignificant effect, while in negative shocks, inflation has a negative and significant effect on poverty. It shows that a decrease in the price of goods significantly impacts poverty alleviation in the long term. Furthermore, trade has no significant effect in the long term in both positive and negative shocks. The short-term estimation results show that all variables are significant for positive and negative shocks, except for positive shocks of inflation and negative shocks of trade. Therefore, it is recommended that the government adopt a poverty reduction program by improving more stable economic growth instruments, increasing foreign investment that is more labor-intensive, and controlling inflation more effectively to avoid unreasonable increases in the price of goods.