Determinants of Poverty in Indonesia: The Role of Sectoral GRDP, Investment, Unemployment, and HDI

Abstract

This study aims to analyze the effect of sectoral Gross Regional Domestic Product (GRDP), investment, unemployment, and the Human Development Index (HDI) on poverty rates across 34 Indonesian provinces from 2015 to 2024. Utilizing panel data regression, the formal econometric diagnostics confirm that the Fixed Effect Model (FEM) is the most appropriate estimation framework. The empirical findings reveal that all independent variables simultaneously and partially exert significant effects on poverty rates. Specifically, sectoral GRDP and HDI exhibit a significant positive relationship with poverty, indicating a non-inclusive pattern of economic transformation and structural labor market mismatches that lead to educated unemployment. Conversely, investment and open unemployment demonstrate significant negative effects, where capital inflows successfully mitigate poverty, and declining open unemployment anomalies reflect a labor shift toward low-productivity informal survival sectors. Consequently, regional development policies must look beyond aggregate growth targets by structurally redirecting investments toward labor-intensive industries, bridging the educational skill gap, and expanding formal, productive employment options to ensure equitable poverty reduction across Indonesia.