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Bridging the Divide: How Indonesia Can Turn Economic Growth into Inclusive Prosperity

In 2024, Indonesia’s GDP growth reached 5.1% (Kristianus, 2024), yet the GDP growth is not significant in reducing income inequality in Indonesia. In addition, Indonesia's Gini Index stands at 34.9 (World Bank Indicators, 2024), indicating that conditions are not optimal. Therefore, Indonesia should maintain momentum in reducing inequality through inclusive policies to ensure that all segments of society feel economic prosperity. This is supported by Mukhlis et al. (2018), who found that the economy's growth does not substantially impact the disparity in income inequality. Therefore, the government urgently needs to address the structural issues that impede the equitable distribution of wealth in light of Indonesia's GDP and income inequality disparity and stop the gap between the rich and the poor from widening. If not, Indonesia's social and economic inequality will worsen as the potential advantages of economic expansion continue to elude the most vulnerable or excluded populations. Examining this conflict's origins, methods, and repercussions is necessary to comprehend how it is conducted. In addition, growth and inequality are two interrelated essential variables in examining economic development. Both are often used as benchmarks to assess a nation's or an area's economic performance (Novianti & Panjaitan, 2022). Indonesia has three steps: digitalization, increasing FDI, and quality education.

Firstly, digitalization is like a double-edged sword. Technology is a weapon for equality in developed nations because of the broad infrastructure, trained workers, and regulations that include everyone. In contrast, digitalization in developing countries has the potential to exacerbate inequality if access, literacy, and supporting regulations are insufficient, resulting in only a small number of advanced economic actors benefiting. This statement is consistent with Nguyen, (2022) that digitalization reduces inequality in developed countries thanks to equitable infrastructure and skilled human resources, but exacerbates inequality in developing countries due to limited access and inadequate community readiness. For instance, in Indonesia, the government has developed several initiatives to promote enhanced digital literacy and skills. These programs include the Pre-Employment Card and the National Digital Literacy Program, both centered on the concept that Indonesia is becoming more digitally capable(Limanseto, 2023). In addition, the government focuses on enhancing digital literacy while promoting an entrepreneurial spirit among the youth. They are anticipated to establish technology-driven enterprises that provide new solutions for diverse community needs.

Secondly, significantly increasing foreign direct investment (FDI) in Indonesia can indirectly decrease income disparity. FDI can raise the income of low-income groups if inclusive policies support it. This impact may be achieved via the creation of new employment, the rise of productivity through technology transfer, and the encouragement of development in labor-intensive industries. The findings are similar to those of previous studies Nguyen, (2023) shows that an increase in FDI in developed countries will increase income. However, increasing FDI in developing countries will reduce inequality. Another support research by Makhlouf, (2023), our research reveals that income inequality dynamics in developing countries are heterogeneous some have succeeded in reducing inequality, while others are still struggling. In addition, the interaction between digitalization and foreign direct investment has dramatically helped reduce income inequality in developed and developing countries(Yin & Choi, 2023). Subsequently in Indonesian cases, Indonesia needs to strategically increase FDI to reduce income inequality. Targeted FDI can create jobs, transfer technology, and promote inclusive economic growth key factors in addressing income inequality sustainably. That argument has been supported by Suanes (2016), who shows that the association between FDI and income inequality indicates a positive and statistically significant relationship.

Thirdly, Inequality in education, including accessibility and quality, will significantly contribute to economic inequality (Abdelbaki, 2012). This happens in Indonesia, where providing equal access to excellent education is still difficult due to structural issues, including poverty, school quality discrepancies, teacher competency differences, and a lack of infrastructure shared throughout regions (Sinaga, 2024). In order to bring the vision of Indonesia Emas 2045 into reality, several significant obstacles need to be conquered. Thus, unequal distribution of learning opportunities will further exacerbate economic imbalance in society. Furthermore, to raise the income of the most impoverished people, the government has to devise comprehensive and targeted measures. Building bridges that shrink the gap between the social pyramid's bottom, middle, and top strata should be this method's primary emphasis. The community's economic empowerment should be founded on the needs experienced by the community. This allows for the methodical reduction of the expanding disparity via implementing policy actions that are both targeted and durable. Lastly, Indonesia’s income inequality is a silent war with visible casualties, especially for the marginalized. In addition, we need real steps forward and reforms to address the issues: digitalization, increasing FDI, and quality education. The question is not whether we can afford to act, it is whether we can afford not to. If Indonesia can bridge the gap between the privileged and the left behind, then the next steps of the country's economy will not be determined by the rise of its GDP. Finally, Indonesia's future is not dependent on the quantity of its gross domestic product (GDP) but on the country's capacity to distribute the benefits of prosperity to every individual, beginning now.

Joko Susilo

Joko Susilo

Joko Susilo is a highly accomplished individual with a diverse background in Economics, Educator, Renewable Energy Initiatives and Sustainable Waste Management (SWM) . Currently, he is interning as a Research & Academics at Catalyst of Change ASEAN, where he contributes to sustainable development projects. He holds a Master of Arts in Economics from the Faculty of Economics and Business at the Indonesian International Islamic University in Jakarta, where he focused on areas such as Macroeconomic, Microeconomics Economic Development, Climate Change, Policy, Writing, and Corruption etc.

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