A multiplier decomposition method to analyze poverty alleviation

Abstract

The objective of this paper is to present a multiplier decomposition method focusing on poverty alleviation. The decomposition captures the various mechanisms and linkages through which a production sector's output contributes to poverty alleviation within a socioeconomic system represented by a Social Accounting Matrix (SAM). It is shown that a multiplier can be broken down into two multiplicative effects, the distributional and interdependency effects. The decomposition method is applied to the case of Indonesia. A key policy implication is that the human capital of the poor needs to be enhanced if they are not to be sealed off from the industrialization process.