Rural bank development and poverty reduction in Indonesia: Evidence from panel co-integration and causality tests

Abstract

The purpose of this study is to identify the possible causal links between rural bank development and poverty in provincial area of Indonesia. This study uses panel data for 27 provinces in Indonesia over the period of 2000–2013. The panel co-integration and Granger causality tests are applied to investigate the relationship between rural bank assets and regional poverty. The results of co-integration tests show that there is no long run relationship between rural bank assets and provincial poverty. Moreover, the Granger causality tests show that there is no evidence of causality relationship between provincial poverty and rural bank assets. This means rural banks still have no significant contribution to reducing provincial poverty as intended by the government.