Faculty of Economics and Business

Universitas Gadjah Mada

Development Economics II

Aryo Wibianto
18/422973/EK/21651

This is a one hundred minutes, open book midterm exam

_________________________________________________________Prof. Catur Sugiyanto

Do 4 out of 5 questions. Grade are equally distributed to each question. You can use any
books and sources but do not work together with your colleagues in this class or with other
person. You could send your answer sheet to my email (catur@ugm.ac.id), academics
(akademik.feb@ugm.ac.id) or uploaded in the Simaster.

Indonesian Economic Indicators

  2016   2017  2018  2019  2020¹
GDP
  (% Annual change) 5.0 5.1 5.2 5.02 -2.50
Inflation
  (% Annual change) 3.0 3.6 3.1 2.7 1.50
Government Debt
  (% of GDP) 27.9 28.5 31.5 30.0 39.0
Exchange Rates
  (IDR/USD) 13,309 13,381 14,25 14,25 14,50
Current Account
  (% of GDP) -1.8 -1.7 -2.9 -2.7 -1.75
Interest rate
  (%) 4.75 4.25 6.00 5.00 4.00
Population
Million 261 264 267 270 275
Poverty
% of Population 10.7 10.1 10.0 9.8 8.5
Unemployment
% Labor force 5.6 5.5 5.3 5.2 14.8
Foreign Exchange Reserve
Billion USD 116.4 130.2 120.7 131.7 -

1. Using the above data, please write a report on the level of wellbeing of the
Indonesian for the last 5 years.

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To answer the following problems, please use the papers you read and reported as the base
of your argument.

2. Happiness index in Indonesia show that those who live in the rural area are happier
than those who live in the urban. Even, family in the rural area are stronger during
the shock (disaster or family member illness). How would you argue on the
existence of differences between those in the urban and the rural.

Answer: I didn’t submit my Policy Paper Review on the second week of teaching,
although I found a paper that is related to the issue presented in the question.
“Supporting SME Innovation, Growth, and New Business Development by
Regional Entrepreneurship Model” By Anneli Manninen & Tarja Meristo
(Researchers from Laurea Universities of Applied Sciences) & “BPS: Hidup di
Kota Lebih Bahagia Dibanding di Desa, Ini Acuannya” by Mohammad Nur
Asikin. The article showed that Indonesia have an increased Happiness Index
stat after having the date processed by BPS (Badan Pusat Statistik) with an
increase of 70,69 %. Some research conducted and surveys being implemented
concludes that most of citizens living in rural areas tend to be happier than
citizens that live in urban or metropolitan areas. This statement is supported by
facts and surveys from the article that most of rural citizens doesn’t have high
aspirations and ambitions compared to the ones living in urban areas. The ones
in rural areas tend to be more simplistic in nature. Another fact was that I found
out during one of my trips to a rural area named Baluran in Jawa Timur for my
study purposes, that most individuals living in rural areas tend to be more
altruistic in nature due to the fact that their religious belief is strongly embraced
by the cultural aspects of rural citizens.

Now regarding labor productivity in rural areas, rural areas doesn’t have that
many sectoral industries being established compared to urban developed areas.
This makes room for a lot of industries to open up. Regarding the leadership
spearheading the charge to regional rural development in regencies, since most
of the citizens weigh more altruistic than materialistic, their selected leaders and
democrats will most likely to be blue-collar than ivory-tower in characteristic
traits.

3. Because involvement in the remunerative sectors is determined by various financial,

social and human capitals poor farmer households were unable to combat the entry
barrier and were prevented from getting access to them. In addition, gender gaps in
educational outcomes still exist. This incidence could be attributed to an uneven
allocation of household resources towards the schooling of boys and girls. Describe
how these inequality phenomena developed and analyzed in your paper case.

Answer: The answer of this question is derived from the paper “ANALYSIS OF
MARRIAGE LAW IN INDONESIA: THE ROLE OF CAREER WOMEN IN
HOUSEHOLD LIFE” by Azis Setyagama & “Public Opinion on Income
Inequality in 20 Democracies: The Enduring Impact of Social Class & Economic
Inequality” By Robert Andersen & Meir Yaish. The fact that inequality between
social classes in Indonesia is still high is such an issue that is hardly be overcome

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 by government and financial institutions attempts. The middle-income trap is an
issue that is also faced over and over again surrounding the terms of inequality.
Sociology is the main factor contributing to the inequality issue based in
Indonesia. Most people with a long history of financial well-being tends to be
more upper class in the hierarchy pyramid of social communities. More
opportunities and access to a better life or should I say a better well-being state is
more open to them instead of the middle to lower class. For the middle and lower
class, even having capitals to conduct business attempts are still hard to gain or
even elevate. Women essentially have the same amount of opportunities in
education to man, there is no gender gap in educational offerings. However the
amount of income of parents still contributes heavily on the quality of education
gained by children in Indonesia. Another thing is in career aspects of the society.
Most citizens in Indonesia still upholds the stigma that woman or wives must be
a stay at home parent or being carried financially by the patriarch of the family.
This sets the feminist movement a halt to their progress on general gender
equality between both genders. The overall contribution of the society towards
the economy is included in the components of economic growth such as labor
empowerment and development, the minimalization of importing activities that
could utilize the labor such as by increasing the productivity of labors by
producing more capital goods for consumption and exporting. Welfare in
general is also an aspect variable of the relation between economy and sociology.
By increasing the outputs of services such as healthcare and education that could
diminish the marginalization between citizens. Such welfare status gained by
those examples could be explained with these analogies: with a better or higher
educational gain, labors could have more qualifications and requirements to
apply for high-end jobs or employment in general. The other example is by
providing proper healthcare. If the government provides high-end and equal
facilities for medical treatments and healthcare sustainability, the citizens would
feel more secure and taken care of, and thus social welfare status is reached by
the general populace. Another example of the relation of sociology and economy
is the social hierarchy status on citizens with better opportunities and financial
status.
Let us see it this way, the patriarch of a family is known to be the primary source
of income for the sustainability and consumption of within said family. If the
patriarch earns substantial significant amounts of income, the activities that
could be conducted or participated by the family members is various and wider.
It could lead to more communal circles and networking on various communities.
Thus, the reputational background and network of the family is more sociable
and general. Therefore, by doing such prerequisites, more advantages whether
it’s social or material could be presented to the family.

4. Environmental policies contribute to wellbeing and the long-term sustainability of growth. Economic
development which primarily supported by the natural resources that neglecting the aspects of
sustainability, in turn degrades the environment. Indonesia is an environmentally sensitive
country because of its structure of economic activities. Explain policy that relevance to
boosting economic growth while preventing the degradation of the environment and
examine the effectiveness.

Answer: The answer given in this question section will be composed of

researches that I have individually surveyed during my surveys of SMEs in

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 Mandhing, Bantul regency (To be specific, the leather products industry) and the
paper “Supporting SME Innovation, Growth, and New Business Development by
Regional Entrepreneurship Model” By Anneli Manninen & Tarja Meristo
(Researchers from Laurea Universities of Applied Sciences).Many people do not
realize, and often underestimate, the importance of having businesses in rural
areas or small regions. When discussing business, most of Indonesian citizens
still presumed that most business opportunities could be provided and built
easily in cities and metropolitan areas. The issue discussed and talked about is
the fractional opposite of the truth. The competition for new businesses to
emerge in major cities and developed areas are mostly monopolistic in nature
and difficult for newcomers in a known industry to emerge, unless they present
innovation. Instead in underdeveloped areas, people could grow their regions’
economy and increase the welfare of its citizens. To promote economic growth, a
nation or region must avoid import as much as possible. Let’s see it this way, low
interest rates encourage consumer spending and economic growth, and will
generally influence the currency value positively. But if consumption elevates to
a point where the supply can’t fulfill the demand, either inflation or cyclical
unemployment in the workforce (Gregory Mankiw-Principle of Economics
(1997)) must be enacted. Now economic growth is pointed by higher productivity
of labor and higher consumer spending. The empowerment of rural enterprises
(For this example the leather and woodcraft industry in Bantul) share this goal.
By empowering the citizens by means of informal education and certifications of
processing and producing those products, they have more goods to sell and more
labors are productive. On the other hand, programs like BRInkubator could
help to incubate the SMEs and empower or educate the entrepreneurs to
increase the export rate of their products. The productivity could also be
collaborated with the proper process of toxic or industrial waste. So overall, not
only that the economic growth is increased and more industrial sectors is
established in the region, but also that they manage to harvest the natural
resources and process them correctly to preserve the resources and not
contaminate them by wastes.

5. Individual has his/her own strategy to achieve the maximum goal(s). This could be
related to the consumption in general and time allocation (eg. work, study, leisure).
Explain how different strategies be implemented in different cases and examine its
effectiveness. Explain how would you change the strategy to improve the attainment
of the objective.

Answer: The answer I will be giving is derived from the paper “Gary Becker’s A
Theory of The Allocation of Time”. The discussion emphasized heavily on the
issue surrounding tradeoffs. Such examples of tradeoff could be elaborated by
the outcome of labor productivity and production techniques. Let us see it this
way, if a married woman doesn’t work at firms and tend to be productive within
a household (let say she worked by selling high-end products remotely from her
home), she would contribute to processing simple goods into marginally utility
goods. While if she works at a non-household firm (let’s say corporate
employment), she contributes to the market by producing marketable goods for
general consumption by the citizens. The tradeoff is time spent for educational
purposes. Working in the labor market sometimes require more educational
background and experiences, and they sometimes offer the benefit of having a

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 more stable income on a certain timeframe basis. While working on a household
firm only have requirements set by individuals, and sometimes the income or
revenues from ventures are uncertain. The correlation of income and allocation
of time could be corroborated into consumption by individuals. Having a more
stable income could be sustainable and individuals could save money to spend
more during certain time periods, while having a more uncertain income basis is
a high-risk, high-return in nature.

The paper discussed tradeoff within simple life choices, such as work or leisure.
Tradeoff is the study of how humans and society choose to use money or not to
utilize scarce productive resources to produce various types of training and
development of knowledge, skills, thinking skills, characters, etc. especially
through formal education and distribute them now and then between types
people and community groups. Because the educational process involving
tradeoffs use of a number of resources that are sometimes rare, arises a number
of problems whose answers must be viewed from the point of analysis of
economists. To be able to find an adequate solution, it needs expert thoughts and
cooperation from experts in education, sociology, psychology and so on. Such
issues are identification and measurement of educational economic values. In this
case, including how the calculation or estimation of costs education issued and
educational benefits obtained. Other examples of problem are the resource
allocation in education. The educational process includes the outputs of the
educational process determination of a number of inputs in education. It
includes a discussion of planning the implementation of the incoming education
resourcefulness, various approaches to planning, and several macro and micro
planning models provided.