This paper examines the spatial dimension of welfare and poverty in Indonesia and explores the effective policy intervention to remedy the regional economic disparity which was most vividly shown during the recent economic crisis. The econometric estimations confirm the existence of a spatial poverty trap, where poverty persists for generations. The inclusion of the placement of Impres Desa Tertingal (IDT) implemented during 1994-96 suggests that the regional targeting programme could fail to achieve its policy goal when the empowerment of local communities is insufficient. It is suggested that full-scale decentralization could remedy the targeting policy failure.
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