Journal of Innovation in Business and Economics

Vol. 03 No. xx June 2019 Pg xx

P-ISSN: 2580-9431 E-ISSN: 2581-2025 http://ejournal.umm.ac.id/index.php/jibe

DOl,
Received: xx-xx-20xx | xx-xx-20xx | xx-xx-20xx

Does the Quality of Education Matter in

Inclusive Economic Development? Study in
the Special Region of Yogyakarta Province
Zainuri1, Sunlip Wibisono2, Roudhotul Jannah3
Faculty of Economics and Business, University of Jember1,2,3

Abstract
Economic development is said to be inclusive if it involves all levels of society in economic activities that benefit
society, such as reducing inequality and poverty and improving their standard of living. In the Province of
Yogyakarta Special Region, it can be seen that it has a high level of economic growth, but the level of poverty and
inequality is also high. This study aims to determine the achievements of inclusive economic development and the
effects of population growth, unemployment, and the quality of education on inclusive economic development. The
analytical method used is panel data regression analysis, with time series data for 2014-2021 and cross-sectional data
for five regencies/cities in the Special Province of Yogyakarta. The study results a show that inclusive economic
development in the Special Province of Yogyakarta is in a suitable category. This study also finds that the quality of
education is proven to have an important meaning in inclusive economic development throughout the Province of the
Special Region of Yogyakarta, which is indicated by a positive coefficient and is statistically significant. Population
growth does not significantly affect inclusive economic development, while unemployment strongly contributes to
inclusive economic development.

Keywords: Inclusive Economic Development; Population growth; Open Unemployment Rate; Education Quality

Introduction
Economic development is a series of economic efforts to develop economic activities to improve
the available infrastructure, improve education levels, and improve technology. Then the results of this
development are expected to increase employment opportunities, increase the level of income available,
and improve the welfare of the community (Gupta & Vegelin, 2018; Maparu & Mazumder, 2017). In the
economic theory of development, the trickle-down effect theory says that increased economic growth will
automatically create conditions for achieving social welfare. But based on the facts that occur in
developing countries, the statement of the trickle-down effect theory does not materialize. This is
motivated by the fact that high economic growth does not guarantee the same benefits in every class of
society, so there are still many economic problems in the form of high poverty rates, inequality, and
unemployment, even though economic growth has been high (Akinci, 2017; Skare & Prziklas, 2016).
Inclusive economic development emerges as a solution to the problems in the trickle-down effect
theory. Inclusive economic development focuses on achieving high economic growth and quality
economic growth, which can reduce poverty and inequality and increase employment (Gupta et al., 2015;
Maryam & Irwan, 2022; Stawska & Jablonska, 2021). The emergence of the concept of inclusive
economic development, which is considered to prioritize quality and equitable economic development, is
motivated by opposition to development practices that only focus on achieving socio-economic indices.
Issues of poverty, inequality, and environmental degradation arise as a result of exploitative development,
despite the fact that development practices over the past five years have succeeded in improving human
living standards (Abosede & Onakoya, 2013; Gupta & Vegelin, 2018; Widianingsih & Paskarina, 2019).
Through inclusive economic development, we will encourage sustainable development in
achieving a balance between natural preservation, economic progress, and social cohesion because the
concept of development is different from growth, where development emphasizes other aspects of
welfare, especially education and health, not just money (Iniguez-Montiel, 2014). The Indonesian
government has also focused on creating inclusive economic development evenly distributed in each
province, including the Special Province of Yogyakarta. In addition, in 2021, the economic growth of the

1
E-mail: zainuri.feb.unej.ac.id
2
Email:
3
E-mail:

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Special Province of Yogyakarta reached 5.53%, exceeding the national average of 3.69%, and it became
the province with the highest economic growth in Java.
The economic growth in Yogyakarta Special Region Province has not been able to make a
significant contribution to reducing poverty. This can be seen from the high percentage of poor people in
2021 in Yogyakarta Special Region, which is 11.91% and also the highest in Java Island. The high
poverty rate is indeed influenced by many things, one of which is the high inequality of income
distribution, which can be seen from the Gini ratio. The Gini ratio in Yogyakarta Special Region Province
in 2021 of 0.436 also exceeds the national average and is also the highest in Java.
Based on the facts and data presented, it can be seen that the economic conditions in the Special Region
of Yogyakarta Province are at a high level of economic growth, but the percentage of poor people and
inequality are also high, which shows that the inclusiveness of economic development in the Special
Region of Yogyakarta has not been maximized. The Organization of Economic Co-operation and
Development (OECD) explains that high inequality in income distribution is an obstacle to inclusive
economic development, i.e., development whose results must be felt equally by all groups. The
inclusiveness of economic development in a country or region Influenced by population growth,
unemployment rates, and the quality of education (Lumowa et al., 2021).
The relationship between population growth and inclusive economic development can be reflected
in Malthus' theory, which states that a high population will lead to an increase in poverty . High levels of
poverty can be an obstacle to inclusive economic development. This statement is relevant to Tella and
Alimi (2016) and Anyanwu (2013), who argue that high population growth will increase poverty, which
can worsen the level of inclusive economic development. A high unemployment rate will have an impact
on increasing the poverty rate. A high unemployment rate indicates a decreased level of community
participation in economic activities (Zainuri et al., 2021). The condition of an area with a high
unemployment rate can be an obstacle to inclusive economic development in the area (Putra & Arka,
2018) because unemployment problems will lead to an increase in poverty in the area (Hartati, 2021;
Hidayat et al., 2020). The quality of education is the third factor that affects the inclusiveness of
economic development. Quality education is a fundamental way to access other rights, one of which is to
increase opportunities to access the economy through decent work. So that later it can break the chain of
poverty and increase the inclusiveness of economic development in the region (Neamtu, 2015). The level
of education quality can be seen from the average years of schooling, which shows the number of years
the population spends in formal education. The RLS determines the quality of education in a region's
community. Improving the quality of education will create inclusive economic development because the
high quality of education possessed by the community will increase opportunities to gain economic
access, thereby reducing income inequality and facilitating inclusive economic development (Adeniyi et
al., 2021; Hidayat et al., 2020; Prabandari & Santoso, 2018).
Although inclusive economic development is not a new issue, its discussion still attracts attention,
especially since the focus and role of the central and regional governments in realizing inclusive
economic development are increasing, including in Indonesia. There is still a phenomenon of high
economic growth, but it has not had an impact on reducing poverty and income distribution inequality.
This study aims to determine how much the level of inclusiveness of economic development in the
Special Province of Yogyakarta influences population growth, the open unemployment rate, and the
quality of education in the Special Province of Yogyakarta. Research related to inclusive economic
development is very important because it is in line with the goals of sustainable development, especially
the eighth goal, which is to promote inclusive and sustainable economic development, full and productive
employment opportunities, and decent work for all.

Literature Review
1. Inclusive Economic Development
According to Gupta et al. (2015), Stawska and Jablonska (2021) and Abosede and Onakoya
(2013), there is no mutual agreement on what is meant by inclusive economic development. However, the
concept of inclusive economic development consists of two concepts: inclusiveness and economic
development. The term inclusive means that every community has equal economic, social, and political
access. This means that all levels of society get the same benefits from development. Inclusivity relates to
equal access and opportunity and no discrimination. The inclusive concept prioritizes people on the
poverty line, disadvantaged, and left behind (Dörffel & Schuhmann, 2022; McGranahan et al., 2016;
Sodhi & Jha, 2021).

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Meanwhile, economic development is the process of creating growth, progress, and positive
change in the economic field, where the ultimate goal of economic development is to improve people's
living standards and quality of life (Tenaw & Beyene, 2021). Inclusive economic development is defined
as development that combines empowering the participation of all levels of society with the goal of
human welfare (Basyirah et al., 2022; Notolegowo, 2023; Rini & Hamonangan Tambunan, 2021).
Inclusive economic development is a process to ensure marginal groups participate in economic
development activities so that they can increase their income and the poverty rate will slowly begin to
decrease. In addition, inclusive economic development is defined as development that involves
marginalized communities and sectors in the economic process for human welfare through creating jobs
and increasing work productivity.
The World Bank further explains that inclusive economic development can be carried out through
labor-intensive industrial policies, namely by building conditions that stimulate increased employment
and productivity to create new jobs and income for low-income people. Then, according to the
Organization for Economic Co-operation and Development (OECD), inclusive economic development
can be achieved through pro-poor growth, which will later have a positive relationship with improving the
health and education sectors for people's welfare. After that, the United Nations Development Program
(UNDP) explained inclusive economic development through the production and income sides of the gross
domestic product (GDP). The focus of the concept of human-centered, inclusive economic development
Individuals with various needs, such as education, employment, and social security, must consider
inclusive economic development. Therefore, people living in poverty need greater attention. Then, the
goal of inclusive economic development is to overcome inequality in marginalized communities'
countries, regions, incomes, and living standards. Thus, one of the indicators of achieving inclusive
economic development is the equal distribution of income, which can be seen through small inequality
figures (Dörffel & Schuhmann, 2022; Nurlanova et al., 2021).

2. Population Growth Theory

In 1798 the Rev. Thomas Malthus expounded a theory on the relationship between population
growth and economic development. Malthus said that a country's population growth doubles every 30 to
40 years. Many developing countries cannot increase their per capita income above subsistence per capita
income unless they take preventive measures through birth control (Tartiyus et al., 2015). Unless they
take precautions, the available options are "positive" control through hunger, disease, and war. Malthus
also stated that if population growth is not controlled, it will impact the depletion of natural resources in
the long run. This is due to the growth in food supply not being able to keep up with high population
growth, and per capita income (in agricultural societies, defined by per capita food production) tends to
be very low. Malthus felt that the best way to overcome poverty was to advise individuals to restrain their
passions (moral restraint) and limit the number of offspring (Efuntade & Efuntade, 2020; et al., 2022).
Thus it can be seen that a high population growth rate will impact decreasing per capita income,
indicating that people experience difficulties in meeting their basic needs, increasing poverty. The high
level of poverty can be one of the obstacles to inclusive economic development in a country or region
because one indicator of achieving inclusive economic development is reducing or reducing poverty
levels.

3. Unemployment Theory
Okun law (Okun's law) explains that there is a close relationship between unemployment and
economic growth (Durech et al., 2014; Hooper, 2017). The higher the economic growth, the lower the
unemployment rate in the region. Okun stated that increasing the growth rate by 1% could lower
unemployment by around 0.4%. Thus, a relatively high economic growth rate is one of the keys to
reducing unemployment. Okun also explained that a growth rate of around 3% is needed for
unemployment to remain constant. Two things cause this: first is the population, where a continuous
increase in the labor force must also be followed by an increase in employment so that unemployment
will still exist under these conditions. The second is output per worker, where output per worker
occasionally increases, indicating that economic growth is higher than existing employment growth. For
example, the labor force grew by 1%, and output per worker grew by 2%. Thus, output growth must equal
3% (1% + 2%) to keep the unemployment rate constant.
In this case, a high open unemployment rate may indicate that the employment rate is declining.
Thus, these conditions will have an impact on hampering inclusive economic development in a country or
region. One of the keys to inclusive economic growth is increased employment, which has implications
for increasing people's incomes to reduce poverty and inequality.

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4. Human Capital Theory

The education sector has significantly contributed to achieving sustainable economic development,
among other things, by improving the production process. If this happens, the opportunity to improve the
quality of life is also greater. In this case, the achievements of sustainable development in the field of
education can be known through the human capital approach, which is defined as the human capacity to
increase productivity, one of which can be seen from the aspect of education, where education plays an
important role in realizing the ability of a country to be able to adapt to technological developments.
Rapidly(Curea & Ciora, 2013; Pauw et al., 2015).
In this case, education is an investment in human resources to increase human capabilities and
productivity through various types and forms of education that have been prepared. People with a higher
level of education in terms of years of schooling will have better jobs and wages compared to people with
less education. The theory of human capital pioneered by Gary Becker, Edward Denison, and Theodore
Schultz dominated the literature on economic development and education in the post-second world war
period until the 1970s.

Research methods
This research is qualitative with an associative approach through secondary data in the form of
time series and cross-sections obtained through the Central Bureau of Statistics. Inclusive economic
development is the dependent variable of the study and is proxied using the Inclusive Economic
Development Index (IPEI). This study uses annual data with a research time frame of 8 years, namely
2014–2021, in 5 districts or cities in the Special Region of Yogyakarta Province, including Kulon Progo
Regency, Bantul Regency, Gunung Kidul Regency, Sleman Regency, and Yogyakarta City. The data
analysis method used in this study is panel data regression to determine how much influence population
growth, open unemployment rate, and education have on inclusive economic development in Yogyakarta
Special Region Province.
The regression equation in this study is:

IPEIit = β0 + β1PPit + β2TPTit+ β3RLSit + eit

Where: IPEI = Inclusive Economic Development Index; β 0 = Constant; β1,β2,β3 = Regression
coefficient of independent variables; PP = Population Growth; TPT = Open Unemployment Rate; RLS =
Average Years Schooled; i = Cross Section; t = Time Series; e = Error term, namely the error rate of the
estimator in the study. The estimation of the panel data regression method is done through three model
approaches, namely: (1) the common effect model, which is the simplest approach to the panel data
regression model because it systematically combines only time series data and cross-sectional data. This
model assumes that the intercept and slope values have a fixed value; if there is a difference in the
intercept and slope values, then the difference can be explained by a disturbance (residual or error); (2)
Fixed Effect Model: this is a panel regression model approach where dummy variables are added to
estimate the data. In this model, it is assumed that there are different influences between regions (cross-
section), so that the cross-section is estimated as an unknown parameter using the dummy variable
technique. (3) Random Effect Model: This is a panel regression modeling approach that assumes that the
error terms have interpersonal and temporal relationships. The use of disturbed variables, aka the random
effects method, helps to minimize parametric performance problems (Hsiao, 2022).
The determination of the best estimation approach model in the panel data regression method will
be carried out through (1) the Chow Test, which is a test to be able to compare the standard effect model
with a fixed effect; (2) Hausman Test: is a test to be able to compare the fixed effect model with a random
effect; (3) Lagrange Multiplier Test: This is a test conducted to compare random effect or common effect
models (Widarjono, 2018). The test will proceed to the statistical test and the classical assumption test.
The statistical test is carried out to see the magnitude of each coefficient of the independent variable both
simultaneously and partially on the dependent variable using: (1) F-Statistic Test: This test is conducted
to see the relationship of all independent variables in the model as a whole simultaneously to the
dependent variable; (2) t-test: this test is conducted to test the research hypothesis regarding the
relationship of each independent variable individually to the dependent variable; (3) Coefficient of
determination (R2): This is a tool to measure how far the model's ability to explain variations in the
dependent variable goes, where the coefficient of determination is zero or one. If R2 is closer to 1, it
shows that the independent variable can precisely explain the variation in the dependent variable (Hsiao,
2022).

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The classic assumption test is a prerequisite test that is carried out before conducting further
analysis of the data that has been collected. This classic assumption test is intended to produce a
regression model that meets the BLUE (Best Linear Unbiased Estimator) criteria. Regression models that
meet the BLUE criteria can be used as reliable estimators, testing classical assumptions through (1)
Multicollinearity test: a test to see if there is a correlation between independent variables in the model. If
there is a correlation between independent variables exceeding 0.80, this indicates the presence of
multicollinearity. (2) Heteroscedasticity test: a test to examine whether the regression model has an
inequality of residual variances between observations. If the probability of the t-statistic of the
independent variable is greater than 0.05, then there is no heteroscedasticity. (3) Autocorrelation test: a
test to determine the correlation of members of observations sorted by space or time. A model does not
have autocorrelation if the DW value is between du  2 and du  4; (4) normality test: test to determine the
distribution of data in a group of data or variables, whether normally distributed or not. If the probability
of a JB count is > 0.05, then the data is normally distributed (Hsiao, 2022).

Results and Discussion

Research result

Model testing to determine the best model for panel data begins with the Chow Test. The Chow
test aims to determine the fixed effect model or common effect model that is most appropriate for
estimating panel data. Then testing is carried out to determine whether the fixed effect model or random
effect model is most appropriate for estimating panel data. This is necessary to perform the Hausman
Test. The results of the chow test and Hausman test are shown in Table 1.

Table 1. Chow Test and Hausman Test Results

CHOW TEST RESULTS
Effect Test Statistics df Prob.
Cross-section F 48.585423 (4,32) 0.0000
Chi-square cross-section 78.252394 4 0.0000

HAUSMAN TEST RESULTS

Test Summary Chi-Sq Statistics Chi-Sq. df Prob.
Random cross-sections 58.671561 3 0.0000

Based on the table chow test results, the probability value of the Chi-square cross section is 0.0000
or less than α = 5%, which indicates that the correct model to use in hypothesis testing is the Fixed Effect
Model. Then, based on the table Hausman test results, the random cross-section probability value is
0.0000 or less than the significance level α = 5%. So the best estimate of the suitable panel data model is
the Fixed Effect Model. Furthermore, there is no need to do the LM (Lagrange Multiplier) test because it
is certain that the Fixed Effect Model is the best to answer the research problem formulation because the
Fixed Effect Model has been selected twice. However, if the Hausman test chosen is the Random Effect
Model, it is necessary to continue testing the LM (Lagrange Multiplier) test.
Based on the Chow Test and Hausman Test, the appropriate research approach model is the Fixed
Effect Model. Table 2 shows the estimated data with the Fixed Effect Model.

Table 2 Panel Data Regression Results with the Fixed Effect Model
Variables coefficient std. Error t-Statistics Prob.
C 4.068092 1.653279 2.460619 0.0195
Pp -0.429744 0.229542 -1.872186 0.0703
TPT -0.056482 0.016571 -3.408410 0.0018
LOG(RLS) 1.110783 0.645167 2.721699 0.0048
Effects Specification
Cross-section fixed (dummy variables)
R-squared 0.959583 Mean dependent var 5.854500
Adjusted R-
0.950742 SD dependent var 0.356528
squared
SE of regression 0.079129 Akaike info criterion -2.058629

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Sum squared
0.200363 Schwarz criterion -1.720853
residue
Log-likelihood 49.17258 Hannan-Quinn criteria. -1.936500
F-statistics 108.5353
Durbin-Watson stat 1.984965
Prob(F-statistic) 0.000000

Based on data analysis with the Fixed Effect Model in table 2, the following equation is obtained:
IPEI = 4.068092 – 0.429744 PP - 0.056482TPT + 1.110783RLS

Furthermore, based on the table above, the value of the F statistic is 108.5353, and the probability
value of the F statistic is 0.000000. So, this value indicates that the probability F statistic ≤ 0.05
significance level. Thus, all independent variables, namely population growth, open unemployment rate,
and RLS, have a simultaneous (together) effect on the dependent variable, namely the inclusive economic
development index.
Then based on the table, it is also known that the influence between the independent variable and
the dependent variable is defined as follows: (a) population growth (PP) has a statistical probability value
of 0.0703 and is greater than the alpha value of 0.05, meaning that the population growth variable is not
has a significant effect on inclusive economic development; (b) the open unemployment rate (TPT) has a
statistical probability value of 0.0018 and is smaller than the alpha value of 0.05, which means that the
open unemployment rate variable has a significant effect on inclusive economic development; (c) the
average length of schooling (RLS) has a statistical probability value of 0.0048 or less than an alpha value
of 0.
In addition, the table also shows the coefficient of determination (R2) through the Adjusted R-
squared value of 0.950742 or 95.07%. This means that inclusive economic development is influenced by
population growth, the open unemployment rate, and RLS of 95.07%. The rest is influenced by other
variables not explained in this study.
Then a normality test is carried out with the results as shown below:

Figure 1. Normality Test Results

Figure 4 shows that the probability value is 0.793068 and is greater than the significance of 0.05
(0.793068 > 0.05), so it can be concluded that the data is typically distributed.
Then a multicollinearity test was carried out with the following results:

Table 3 Multicollinearity Test Results

Matter TPT LOG(RLS)
Matter 1.000000 0.030659 0.341023
TPT 0.030659 1.000000 0.772388
LOG(RLS) 0.341023 0.772388 1.000000

So, when viewed from the correlation coefficient value between independent variables, all of
them are less than 0.8. Thus, there is no multicollinearity problem.
Furthermore, the heteroscedasticity test was carried out with the results:

Table 4 Heteroscedasticity Test Results

Variables Coefficient std. Error t-Statistics Prob.
C -0.024762 0.099295 -0.249374 0.8045
Pp -0.009844 0.054334 -0.181168 0.8573
TPT -0.001857 0.005526 -0.336012 0.7388

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LOG(RLS) 0.045521 0.058847 0.773549 0.4442

Based on table 4, it is known that the probability value of each independent variable is > 0.05.
Thus, the data does not show symptoms of heteroscedasticity. Lastly is the autocorrelation test, which
produces a DW value of 1.984965. Furthermore, based on the DW table with a significance of 5%, the
number of data (n) is 40, and the number of independent variables (k) is 3, so the dU value is 1.659 and
the dL value is 1.338. While the 4-dU value is 2.341 and the 4-dL value is 2.662. So, with a DW value of
1.984965, it is between dU and 4-dU (1.659 < 1.984965 < 2.341). Thus, this research is free from
autocorrelation.

Discussion
Economic Development Inclusivity in Regencies/Cities in the Province of the Special Region of
Yogyakarta
The level of inclusiveness of economic development can be seen through the inclusive economic
development index issued by the Ministry of National Development Planning/Bappenas. The
achievement of economic development inclusiveness is assessed from the inclusive economic
development index with a scale: of 1-3 unsatisfactory, 4-7 satisfactory, and 8-10 very satisfactory.
According to the Ministry of National Development Planning/Bappenas, achieving inclusive economic
development inSpecial Region of Yogyakarta2014-2021 increased significantly based on the criteria for
an inclusive economic development index. However, in 2020 it decreased, as shown in Figure 2.

Figure 2. Achievements of Economic Development Inclusivity in the Province of the Special

Region of Yogyakarta in 2014-2021 (Source: Bappenas 2021, processed)

Based on the picture above, the level of inclusivity of economic development in the Special
Region of Yogyakarta from 2014 to 2019 has increased and is included in the satisfactory achievement
scale. Even though 2020 experienced a decline due to the CO-19 pandemic, the achievements of inclusive
economic development remained on a sufficient scale, with a score of 6.13. Then, in 2021, the Special
Region of Yogyakarta will succeed in increasing its inclusivity achievement to 6.63. The meaning of
these index numbers can refer to Ali and Zhoung's (2007)(2007) opinion regarding the concept of
inclusive economic development, inclusive economic development is focused on creating economic
opportunities and ensuring that all levels of society can easily access these opportunities.

The Effect of Population Growth on Inclusive Economic Development

Based on the results of the panel data regression test using the Fixed Effect model, it is known that
the population growth variable has no significant effect on inclusive economic development in the Special
Region of Yogyakarta. The existence of population growth that is not matched by the awareness of each
individual to continue to improve their quality of life through increased education and creativity and the
quality of the world of work will certainly reduce the effectiveness of inclusive economic development
(Dao, 2012). In the concept of inclusive economic development, population growth becomes social
capital that plays an important role in economic development, the role of the government that supports
easy access to education, social and economic will encourage the effectiveness of inclusive development
(Whalley & Zhao, 2013).
However, the results of this study are relevant to Guney (2017), who concluded that the variable
population growth has no significant effect on the inclusiveness of economic development in 73 selected
developed countries. This is because population growth in developed countries is low and is supported by
the awareness of each individual to continue improving the quality of life through increased education,

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creativity, and the quality of the world of work. On the other hand, the government also supports easy
access to education, social and economic. Thus, the ups and downs of population growth do not affect the
inclusiveness of economic development.

Based on BPS data, the population growth rate in the Special Province of Yogyakarta in the past
eight years, namely 2014–2021, has decreased. Gunung Kidul Regency is a district in the Special Region
of Yogyakarta Province with the lowest population growth among other districts and cities. In 2021, the
population growth in Gunung Kidul Regency will be 0.76%, with a population of 758,168 people. When
viewed from the population pyramid, the composition of the population is classified as a young or
expansive population pyramid, namely a population pyramid that explains that the young population is
taller than the old population. In this case, the condition of the productive-age population in Gunung
Kidul Regency is greater, so the economic burden of the productive-age group is also low. This is shown
by the data dependency ratio in Gunung Kidul Regency, which has decreased from year to year. Namely,
in 2014, the ratio of dependents in Gunung Kidul Regency was 53.02 percent; in 2021, it decreased to
50.08%. The decrease in the dependency ratio indicates that the burden that productive people must bear
to finance the lives of non-productive people is also decreasing. Thus, the opportunity to increase the
people's standard of living increases because the costs that should be spent on non-productive ages can be
used to increase their assets, so that poverty in Gunung Kidul Regency for the 2014–2021 period also
decreases. In 2014, initially, it reached 20.83%. In 2021, it will decrease to 17.69%.
In addition, this situation is also supported by the relatively high level of labor force participation
in Gunung Kidul Regency. In 2021, with a population of 758,168 people, 519,637 people were of
productive age, with a labor force participation rate of 75.9, meaning that 75 out of 100 of the workforce
were actively working. This figure means that the opportunity for access to the community's economy is
tremendous and impacts increasing income distribution, as seen from the decrease in the gini ratio in
Gunung Kidul Regency. Namely, in 2014 it had a Gini ratio of 0.352, and in 2021 it was 0.323. Thus, the
declining population growth rate, coupled with a population that is dominated by people of productive
age, does not affect the inclusiveness of economic development.

The Effect of Open Unemployment Rate on Inclusive Economic Development

Based on the results of the panel data regression test using the fixed effect model, it is known that
the open unemployment rate variable has a negative and significant effect on inclusive economic
development. The results of this study are in line with Okun's Law, explained by Arthur Okun in 1962,
that if the unemployment rate is high, it will have an impact on reducing economic growth (Hooper,
2017). This condition also follows the condition in Yogyakarta City, where the open unemployment rate
has fluctuated in the last eight years. However, it has always been the highest in the regencies and
municipalities in Yogyakarta Special Region. In 2018, the open unemployment rate increased to 6.22.
Then economic growth declined. In 2017, it was initially 5.49%. In 2018, it was 5.24%.
The high unemployment rate also had an impact on the increasing poverty rate and income
inequality in Yogyakarta. The poverty rate in 2018 was 6.98%, and income inequality, as seen from the
Gini ratio, also increased to 0.420. Therefore, unemployment has a negative impact on inclusive
economic development because it can reduce economic growth, increase poverty, and increase inequality,
and these indicators become obstacles to inclusive economic development in the region.
The results of this study are supported by Nepal (2019), which shows unemployment has a
negative and significant effect on the inclusiveness of economic development in Nepal. In line with
Nepal's research (2019), Hartati's results (2021) state that the open unemployment rate variable has a
negative effect on inclusive economic development. This is because the high unemployment rate will
impact the high poverty rate and widen the Gini ratio. Then, the results of Nepal's (2019) and Hartati's
(2021) studies are also supported by the results of Hidayat et al. (2020), which show that the open
unemployment rate variable has a negative effect on inclusive economic development.

The Effect of Education Quality on Inclusive Economic Development

Based on the results of the panel data regression test using the fixed effect model, the quality of
education variable proxied by the average length of schooling (RLS) shows a positive and significant
influence on inclusive economic development. This means that if there is an increase in RLS, it will also
have an impact on increasing inclusive economic development in the Province of the Special Region of
Yogyakarta. This study's results align with the Human Capital Theory pioneered by Gery Becker in
1955(Teixeira, 2014), which states that the level of education influences the quality of human resources.
Higher-quality human resources will have high economic access opportunities. Increases in labor

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productivity, reflecting higher education and skills, provide excellent opportunities to access the
economy. In addition, if opportunities to gain economic access increase, this can indicate a reduction in
poverty and inequality. Thus, it can encourage inclusive economic development in the region.

These results are supported by Elbanna and Abdelsalam (2021), who found that the quantity of
education (in terms of school participation) and the quality of education (because of the Human Capital
Index per person) have a positive effect on the short-term and long-term inclusiveness of economic
development in Egypt. This is because improving the quality of human resources and facilitating access
to education will increase labor productivity and promote inclusive economic development. This result is
also supported by Prabandari and Santoso (2018), who state that the quality of education has a positive
effect on inclusive economic development. The higher the quality of public education as measured by the
time spent accessing it, the better the quality of its human resources. With higher quality, human
resources will be able to increase economic access. High labor productivity reflects a high level of
education and ability, providing enormous opportunities to access the economy. In line with the results of
Prabandari and Santoso's research (2018), Hidayat et al. (2020) and Adeniyi et al. (2021) also stated that
the variable quality of education has a positive relationship with inclusive economic development.
Based on BPS data, it can be seen that RLS in the Province of the Special Region of Yogyakarta
during 2014–2021 has increased from year to year. Kulon Progo Regency is a district in the Special
Region of Yogyakarta Province that has experienced the highest average length of schooling in the
Province of the Special Region of Yogyakarta for eight years, namely 2014–2021, which has increased by
0.82 years. In 2021, RLS in Kulon Progo Regency will reach 9.02 years. This figure means that the
average population of the Special Province of Yogyakarta aged 15 years and over has been studying for
9.02 years, in other words, completing grade 3 of junior high school.
The high RLS rate in Kulon Progo Regency has an impact on increasing knowledge and skills that
can increase human capital. Thus, it will be easier for people to access the economy. This can be
demonstrated by the level of employment opportunities in Kulon Progo Regency, which in 2021 will be
96.31%. This high economic access opportunity impacts increasing income distribution, as seen from a
decrease in the Gini ratio; in 2021, the Gini ratio in Kulon Progo Regency will be 0.367. So that these
conditions can increase inclusive economic development in Kulon Progo Regency. This condition can be
seen from the inclusive economic development index, which has increased annually and is in a good
category.

Conclusions, Suggestions, and Limitations

Based on the data analysis and discussion described in the previous chapter, the following
conclusions are generated in this study: Namely, the inclusiveness of economic development in the
Special Region of Yogyakarta Province from 2014 to 2021 has increased. This is known from the
inclusive economic development index, which continues to increase and is in a good category. Even
though 2020 experienced a decline due to the CO-19 pandemic, the inclusivity achievement category was
still satisfactory. Population growth does not significantly affect inclusive economic development in the
Special Province of Yogyakarta. The open unemployment rate negatively and significantly affects
inclusive economic development in the Province of the Special Region of Yogyakarta. The quality of
education proxied by the RLS number has a positive and significant effect. This means that an increase in
RLS numbers will affect an increase in inclusive economic development in the Province of the Special
Region of Yogyakarta.
Based on the description of the conclusions above, the suggestions put forward in this study are:
(1) In increasing the inclusiveness of economic development in the Province of the Special Region of
Yogyakarta, the primary strategy that the government must carry out is to create employment, which of
course is also followed by improving the quality of human resources so that labor work can be optimally
absorbed by existing jobs. In addition, another strategy is to increase the provision of social safety nets
that are right on target for the poor and vulnerable to poverty. (2) The Provincial Government of the
Special Region of Yogyakarta should be able to re-increase job training to improve skills and creativity so
that they are more competitive in the labor market or even open job opportunities to absorb labor and
reduce the current workforce. Unemployment rate. Because if the open unemployment rate decreases, it
will also reduce existing inequality and poverty, so it is hoped that these conditions will not become an
obstacle to the inclusiveness of economic development in the Province of the Special Region of
Yogyakarta. Yogyakarta. (3) The Provincial Government of the Special Region of Yogyakarta needs to
increase access to education, especially for the less fortunate. Because they can create quality human

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resources, they can innovate, compete in the world of work, and participate actively in the economy. If
more and more people actively participate in the economy, regional economic development's
inclusiveness will improve.

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