Jurnal Ekonomi Bisnis dan Kewirausahaan (JEBIK) 2022, Vol.11, No.2, 197-213 197 LESS INCLUSIVE GROWTH IN INDONESIA? THE UNINTENDED CONSEQUENCES OF INTERNET PENETRATION Hidsal Jamil 1 1 Universitas Brawijaya, Indonesia ABSTRACT Separate studies on the impact of internet penetration on growth and per capita income levels, inequality, and poverty levels are still being discussed. Using data from 33 Indonesian provinces between 2008 and 2020, this paper investigates whether internet penetration modulates economic growth by reducing inequality and poverty. The Two-Way Fixed Effect (TWFE) econometric model was used. Two findings can be concluded from this paper. First, Indonesia's economic growth remains less inclusive, as evidenced by rising per capita income, which tends to reduce poverty but not income inequality. Second, Indonesia's economic growth tends to be less inclusive as an unintended consequence of internet penetration. Although it strengthens the effect on poverty reduction, on the other hand, the interaction of economic growth with internet penetration tends to exacerbate income inequality. Based on these findings, the study suggests that the government should improve advanced ICT skills and lower barriers to internet adoption, particularly for the less fortunate. The internet is expected to become a tool to achieve inclusive growth through expanding a newly established middle class instead of simply the economic transformation of the poor into non- poor households under this policy. JEL: L86, O47, I31. Keywords: internet penetration, inclusive growth, poverty, inequality. 1. INTRODUCTION The world is experiencing an unprecedented digital revolution. This era is identified by nearly two-thirds of the world's population online (Statista Research Department, 2022). This figure is expected to grow exponentially in line with the massiveness of digital devices. World Bank (2016) documents internet access is more prevalent in developing countries than clean water and sanitation. Only 3 in 10 households in the lowest group do not have a mobile phone connected to the internet (World Bank, 2016). Thus, the internet has the opportunity to become a game changer in achieving inclusive economic growth, where the most vulnerable groups are more involved. Indonesia also benefits from widespread internet access. (Indonesia Central Statistics Agency, 2012 & 2021) ―henceforth BPS― reported that 53.73% of the Indonesia population have access to the internet in 2020, a more than tenfold increase from 2008. Indonesia has the fourth highest internet users in the world, trailing only China, India, and the United States (Statista Research Department, 2021a). In Indonesia, internet users spend nearly 9 hours daily, which is relatively high compared to the average country (Statista Research Department, 2021b). In other words, the internet has become deeply embedded in daily life. Regrettably, the rapid internet penetration in Indonesia has not been followed by more inclusive economic growth. The average economic growth rate during the reform era was around 5%, which was lower than the new order era (Jamil, 2017; Resosudarmo & Abdurohman, 2018). At the same time, despite the miraculous reduction in poverty, the level of income inequality 1 Email : hidsaljamil@gmail.com Received : 27-03-2022, Accepted: 27-08-2022, Published: 31-08-2022 P-ISSN : 2087-9954, E-ISSN: 2550-0066. DOI: http://dx.doi.org/10.26418/jebik.v11i2.53871