Inverted N-shape relationships: revisiting the dynamic effect of natural resources on poverty in Indonesia

Abstract

Indonesia is recognized as one of the countries with abundant natural resources, especially in the mining sector. However, revenue from these natural resources have not significantly improved the population’s well-being or reduced poverty rate. Notably, some regions with high natural resource revenue still experience high poverty level. Therefore, this study delved into the intricate relationships between natural resource abundance and poverty dynamics in Indonesia. Utilizing panel data spanning from 2015 to 2022 across 444 regencies/cities, we employed advanced econometric techniques, Method of Moment Quantile Regression (MMQR), to unravel the nuanced effects of natural resource revenue on poverty rates. Moreover, our study challenged conventional linear analyses of the natural resource curse hypothesis, emphasizing the need for non-linear modeling approaches to capture the intricate dynamics at play. Our findings reveal a non-linear relationship between natural resource revenue and poverty, characterized by an inverted-N-shape, with significant impacts observed in lower and medium quantile groups. Surprisingly, the linkage between natural resource revenue–poverty does not appear in the high quantile group, suggesting that natural resource revenue is insufficient to benefit the region with severe/extreme poverty rate. Our research underscores the importance of considering cross-sectional dependence and employing robust estimation methods like MMQR to address complex interactions within panel datasets. These findings contribute to the ongoing discourse on natural resource management and poverty alleviation strategies, providing valuable insights for policymakers and researchers alike.