Recent research on the role of institutions in economic development and poverty reduction indicates the importance of institutions, including local institutions. This study examines the importance of institutions as a means to support poverty alleviation policy in Indonesia. Specifically, it addresses two simple but very important policy-questions. First, how important is economic growth for poverty reduction in Indonesia? Second, how important are institutions in determining the poverty performance of economic growth? Though data, especially time series data, are limited, and some estimated regression coefficients are found to be not significant, overall, the findings suggest that improved institutions reflected by higher education enrolment; good health facilities, especially clinics, women empowerment; credit facilities, government development expenditures and cooperatives at the local/village level are all important for poverty reduction.
