The Impact of Structural Change on Income Inequality in the Special Region of Yogyakarta Province

Abstract

The Special Region of Yogyakarta (DIY) Province exhibits the highest level of income inequality in Indonesia. The government of DIY has designed an economic development strategy that prioritizes education and tourism, which encourages structural change from the agricultural sector to the service sector. Nevertheless, such conditions may lead to continued income inequality. This study aims to ascertain the condition and impact of structural changes on income inequality in the Special Region of Yogyakarta (DIY) between 2013 and 2023. This study employs two analytical methods: shift-share analysis and panel data regression with a Random Effect Model (REM). The findings indicate that structural change from agriculture to the service sector exerts a positive and statistically significant effect on income inequality.   In addition, it is found that income inequality is also affected by service sector labor income and government educational expenditure.