Relationship Pattern of Poverty and Unemployement in Indonesia with Bayesian Spline Approach

Poverty is one of fundamental problems which become major concern of Indonesia Government. World Poverty Commission said that unemployment is one of the main causes of poverty. A lot of literatures state that there is a strong correlation between unemployment and poverty, but to prove it empirically, was not easy. To see the relationship pattern between poverty and unemployment in Indonesia, it can be used spline nonparametric regression model. Spline estimator in nonparametric regression can be obtained by Bayessian approach by using prior Gaussian improper and in order to choose the optimal smoothing parameter, Generalized Cross Validation (GCV) method is choosen. Relationship model of poverty and unemployment in Indonesia obtained in the form of a quadratic spline model with two optimal knots where percentage of poverty is in quadratic curve and rise in the stage when open unemployment rate is less than 3.87, and will be declined when the open unemployment rate moved between 3.87 and 4.24. But after the open unemployment rate reached 4.24, the percentage of poverty re-patterned quadratically but decreased slowly. So, for the case in Indonesia, unidirectional relationship between poverty and unemployment in the region occurred only partially, while some are actually spinning.