Unraveling the Poverty Trap in Central Aceh: The Interplay Between Employment, Income, and Human Development

Abstract

This study explores the dynamic relationship between poverty, labor force participation rate, per capita income, and the Human Development Index (HDI) in Central Aceh Regency using the Vector Auto Regression (VAR) model. The analysis utilizes annual time-series data from 2005 to 2023 to capture the interdependencies and temporal effects among the variables. The results show that an increase in labor force participation and per capita income has a significant negative impact on poverty levels over time. Moreover, HDI plays a critical role in reinforcing poverty reduction, indicating that improvements in education, health, and living standards are essential in achieving inclusive development. The impulse response function reveals that shocks to labor participation and HDI generate sustained reductions in poverty, while the variance decomposition shows that income per capita and HDI contribute significantly to long-term poverty forecasting. These findings underscore the importance of integrated policy approaches focusing on employment creation, income enhancement, and human capital investment to reduce poverty sustainably in Central Aceh.