Impact of Infrastructure Spending on Sectoral Employment Absorption: Computable General Equilibrium (CGE) Model

Abstract

The Computable General Equilibrium model is utilized to establish a comprehensive equilibrium in the Indonesian economic framework, assessing the impact of government expenditure on infrastructure development on sectoral employment absorption during the 2019-2021 pandemic period. The PEP-1-1 model, in its static version 2.0 within GAMS 23.5 software, incorporates expenditure variables for infrastructure development as shocks, simulated to elucidate their effects on Indonesia's macroeconomic landscape and economic recovery post-Covid-19 pandemic and crisis resolution. The study reveals that infrastructure development notably boosts sectoral employment absorption, with the Real Estate and Corporate Services sector leading at a 5.3% increase, followed by Transport Support Services and Warehousing at 4.47%, the Food Crops Agriculture Sector at 3.15%, land transportation at 2.9%, and the restaurant sector at 2.88%. Additionally, the fisheries sector, spinning, textile, clothing, and leather industry sectors, as well as government and defense, education, health, film, and other social services sectors, experienced a 1% rise. The equitable distribution of infrastructure development across Indonesia, beyond urban centers, is crucial to uphold the principles of equality and justice in development endeavors