Integrating Equity into Equilibrium: A Pro Poor General Equilibrium Model for Inclusive Economic Policy

Abstract

The persistent challenge of poverty amid economic growth has inspired numerous theoretical innovations to design macroeconomic models that promote both efficiency and equity. One such innovation is the “Pro Poor General Equilibrium” (PPGE) framework, which combines general equilibrium theory with distribution-sensitive approaches. This study emerges from the need to embed pro-poor considerations into the analytical structure of general equilibrium models to support more inclusive development policies. This paper aims to construct a conceptual and textual framework for Pro Poor General Equilibrium using qualitative, descriptive analysis. Drawing upon a diverse body of literature—including international economic theories, Indonesian scholarly discourse, and relevant Arabic economic concepts—the study develops a synthesis that highlights the importance of redistributive mechanisms and inclusive modeling in equilibrium analysis. Through rigorous literature integration and theoretical mapping, the study identifies three key areas where equilibrium modeling must evolve: incorporation of poverty indicators, redistribution-focused price mechanisms, and ethical considerations in utility functions. The results show that PPGE offers a transformative lens through which national policies can be calibrated for both growth and equity. The study contributes to the growing field of development economics by offering a theoretically grounded yet adaptable model for inclusive policy design. It underscores the need for equilibrium frameworks that go beyond neutrality, advocating for intentional equity outcomes in policy modeling.