Inequality in late colonial Indonesia: new evidence on regional differences

Abstract

This paper adds to a growing literature that charts and explains inequality levels in pre-industrial societies. On the basis of a wide variety of primary documents, the degree of inequality is estimated for 32 different residencies, the largest administrative units and comparable to present-day provinces, of late colonial Indonesia. Four different measures of inequality (the Gini, Theil, Inequality Extraction Rate and Top Income Rate) are employed that show consistent results. Variation in inequality levels across late colonial Indonesia is very large, and some residencies have much higher levels of inequality (with, for example, Ginis above 60) than others (with Ginis below 30). This suggests that even within a single colony, levels of inequality may vary substantially and this puts some doubts on the representativeness of using a single number to capture the level of inequality in a large economy. In order to explain the variation across residencies and over time, this paper investigates the role of exports and plantations, so frequently mentioned in the literature. It is shown that both explain a part of the variation in levels of inequality across colonial Indonesia, but that only the rise of plantations can explain changes in inequality levels over time. This points to the importance of the institutional context in which global export trade takes place for the rise of inequality.