Income Per Capita – Income per capita in the Big Indonesian Dictionary or KBBI means national income divided by the number of residents. Per capita income is the average income of all residents in a country. Per capita income certainly has something to do with the economy in a country. Following is a more detailed understanding of per capita income, the function of per capita income for a country, and the factors that influence per capita income.
Definition of Per Capita Income
Per capita income is a calculation of the income of the total population in the country, where per capita income is the result of the country’s national income. Per capita income in a country can increase if the average income of the population of the country increases or is high.
So per capita income is one way to build a country’s economy. Per capita income is also a measure of the state of social welfare in a country. Economic income is a process of increasing total income and also per capita income in the country. Income per capita is also useful to see the development in the country, but it is also useful to see the average income of individuals in the country.
Per capita income data in a country is useful for analyzing the development that occurs in a country. Apart from that, the calculation of per capita income is useful for seeing how the development of welfare in a country, changes in the level of welfare in a country, and predicting per capita income in the future.
Characteristics of Economic Development
Economic development for a country is very important. With rapid economic development, it can increase per capita income in countries with a long period of time. Economic development has the following characteristics:
- Economic development takes place continuously or continuously.
- Efforts to increase per capita income. Which is where a country can be said to have an economic development if there is an increase in per capita income. The increase is one form of welfare of the population in the country. Therefore a country will always try to increase its per capita income.
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- The increase in per capita income increases over a long period of time. This happens if the average income increases from year to year, then per capita income must continue to increase. If income does fall, but the decline is not too far.
- The occurrence of technological or institutional changes. If in a country there is an increase in per capita income, it is not only the economy that is advancing rapidly but also the technology in a country that is also advancing.
Economic Growth Factors
Development in a country is a measure of whether the country’s economy is advanced or not. Economic development is a stage of increasing total income. The success of economic growth in a country is influenced by several factors, such as the following:
1. Natural resources or SDA
The natural resources owned by each country are the wealth that has the most important role in that country. Natural resources are divided into two, namely living natural resources and non-living natural resources.
Living natural resources are all natural wealth or anything that comes from plants and animals. Examples of biological natural resources, such as chickens, goats, cows, tea, coffee, wood and many more. While non-living natural resources are resources that are not from living things. Non-biological natural resources cannot be used as food. Examples of non-biological natural resources, such as water, wind, sunlight and mining products.
Natural resources have a role as the basis of materials for a production. If there are no natural resources in a country, then the country needs to seek economic materials abroad. If a country has abundant resources, the country can process them very well so that spending is not too high.
2. Growth of population or human resources (HR)
Humans also have an important role in processing natural resources. The role of humans is to manage existing natural resources so that they can be used as basic production materials.
Humans are also needed in the development of a country. This is because humans have thoughts that are also useful for development, human resources who have competence and seriousness in carrying out these activities and efforts. If natural resources are managed by people who do not have competence, it can harm the existing natural resources.
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3. Advances in Science and Technology or Science and Technology
Human resources and natural resources in a country are of course very useful when maximizing science and technology. Humans who have good competence and quality human beings, surely they will equip themselves with knowledge and also an understanding of a new technology and knowledge.
Therefore to get a successful and smooth development, it certainly requires many parts in it. Not only that, it is necessary to have different knowledge and expertise possessed by humans so that each process can be carried out properly.
In addition, social factors that exist in society also influence economic development in a country. If the culture in society emphasizes discipline, is diligent and agile, these things can build the country’s economy.
Cooperation is also very important in achieving economic development. If each individual has a strong spirit of cooperation, it will make it easier to carry out collaboration in various fields for development. Surely this will affect the results for the economic conditions in the country.
5. Political Situation in the Country
The policies taken by the government are of course very influential for the country’s economy. If the policies taken in a country are closely related to politics and the economy are very appropriate, then it can lift the country’s economic development.
In addition, development also includes if the political conditions in a country are stable and harmonious, of course it can encourage the rate of economic growth. It’s another case if politics is unstable and there is no harmony between parties, of course it also affects the pace of the economy in a country. Politics is also very influential for the development of the country’s economy.
6. System of Government in the State
The system of government in a country is also very influential on economic development. If a country has a liberal government system, then its economy is also liberal. So it can be said that the government system in the country is one of the factors in the country’s economic development. If the country’s system is good, the country’s economy will run well, and vice versa.
Meanwhile, the government in Indonesia uses a democratic system, where people have freedom but still get supervision from the government so that it is controlled and stable.
7. State Infrastructure Facilities
Facilities and infrastructure support the country’s economy. If the facilities and infrastructure are complete, development can be carried out easily and more optimally. If the facilities and infrastructure do not support it, there can be obstacles in development.
Per Capita Income Calculation Function
Calculation of per capita income occurs once a year. The function of calculating per capita income is as follows:
1. Knowing the development of a country
Per capita income is useful for seeing the average income of the people of a country, so with this the function of per capita income is to find out the development of a country. Does year after year there is development or even no development.
2. As a reference for taking policies in the future
With an increase in per capita income, the data can be used as a reference for a country whether the following year and so on per capita income will increase. So the government can take a policy in the present to the future.
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3. Review the quality of the country’s economy
The per capita income function is useful for reviewing the quality of the people’s economy in a country at a certain time. This is because per capita income data is used as an analysis in evaluating countries. With this, the state can see where it is lacking and what steps to take in the future.
4. Smooth implementation of the country’s economy
With per capita income, a country can assess whether economic activity is running smoothly. The state can assess this with per capita income data.
Components of Per Capita Income
The following are the components in per capita income, namely:
1. National Income
National income is the amount of state income within one year. The value of per capita income and national income is comparable. The higher the national income, the higher the per capita income. Vice versa, if a national income decreases, then the level of per capita income is low.
2. Total Population
The total number of people living in a country is the total population. So the comparison of per capita income and population is inversely proportional. If the total population is high, then per capita income is low. Vice versa, if the amount of income is low, then per capita income is high.
Countries based on Per Capita Income
The function of per capita income data can see the economic condition of a country. Then there are several groups of countries on the calculation of per capita income, as follows:
1. High-income countries
A country can be said to have high income if its per capita income is more than USD. 8,355. Groups of high-income countries are usually from developed countries, such as Singapore, Japan, America and other developed countries.
2. Upper middle income countries
A country can be said to be middle to upper income if its average per capita income is $4,046 to $8,335. Group of middle to upper income countries, such as countries in Europe, Belgium, France, Canada.
3. Lower middle income countries
A country can be said to be lower middle income if its per capita income is between $675 and $4,046. For the country of Indonesia, it is included in the category worth $ 3,870.
4. Low-income countries
Low-income countries, if the average per capita income is less than $675. Countries with low incomes are mostly from African countries and conflict areas, such as Nigeria, Uganda, Somalia, Ethiopia, Afghanistan and other countries.
Negative and Positive Impacts of Per Capita Income
a. Positive impact
- Streamlining the implementation of economic activities that accelerate the process of economic growth
- Creating jobs that can reduce unemployment
- Improve the level of national income
- Improving community welfare
b. Negative impact
- Increasing environmental damage
- Reduced agricultural land
- Pollution of water, air and soil
Impact of Increased Income in Indonesia:
With the increase in per capita income in Indonesia, does it have a positive or negative impact? The following explains the positive impact of increasing income in Indonesia:
1. Stability and consistency in improving Indonesia’s economic indicators
The increase in income status in Indonesia means that Indonesia has succeeded in maintaining stability and consistency in the growth of Indonesia’s economic indicators over the last twenty years. If it continues to grow into the future, then Indonesia can get an increase in per capita income.
2. Increasing Indonesia in international cooperation
With Indonesia increasing from an economic standpoint, it can be said that Indonesia has a higher capability. So this is an opportunity to establish international cooperation.
3. Increasing investment and improving Indonesia’s transaction balance
Indonesia can get a lot of trust from other countries to invest. The quality of Indonesian products can also be ensured to be more competitive. Increased investment and the quality of products and services produced by Indonesia, increased Indonesia’s growth and also recorded an improvement in the balance of transactions in Indonesia.
Apart from that, the increase in income also has negative impacts, such as:
1. Indonesia is considered capable of paying loan money with higher interest.
As a country, of course Indonesia has debt. With increasing income, other countries or countries that give debt think that the Indonesian state is able to pay even higher interest. The impact will increase the cost of government debt which will then become expensive.
2. A number of countries have reasons to revoke trade facilities in Indonesia
Many countries that are Indonesia’s trade partners provide trade facilities that benefit Indonesian products. Several Indonesian products that have benefited include textile products, apparel, agriculture, fisheries, cocoa and wood products. With the increase in Indonesia’s status, it can be a reason for trading partner countries to revoke facilities and cause losses and slow down the Indonesian economy.
3. The high income gap in Indonesia
Overall GNI per capita in Indonesia has increased quite a bit. Many people are curious about this data, because their income is still stagnant or unchanged. This happens because of the income inequality that exists in Indonesia, the distribution of income in Indonesia is uneven. In measuring the level of income inequality, an index called the gini ratio is used. The higher the country’s ratio, the higher the country’s level of inequality.
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Author: Yufi Cantika Sukma Divine