Bridging the Digital Gap: Analysing the Impact of ICT Diffusion on Income Inequality in Indonesia

Abstract

The development of information and communication technology (ICT) has significantly transformed the socio-economic structure of society, particularly in terms of income distribution. This study aims to analyse the impact of ICT development on income inequality across 34 provinces in Indonesia from 2012 to 2020, employing econometric methods based on panel data through a fixed effects model. Empirical findings reveal that ICT readiness and ICT skills tend to exacerbate income inequality, while ICT use and its quadratic form contribute to reducing it. These results suggest that although ICT infrastructure and skills are crucial, their uneven distribution and utilisation can widen income disparities. Consequently, this study highlights the importance of ensuring equitable access to ICT across Indonesia to mitigate economic inequality. The study's recommendations stress the pivotal role of the government in expanding ICT infrastructure, fostering a research and innovation climate conducive to digital transformation, and formulating policies that enhance ICT skills nationwide. These measures would improve digital literacy, upgrade workforce capabilities, and promote inclusive digital economic growth. Ultimately, comprehensive and equitable ICT development can play a critical role in reducing income inequality across Indonesia.