With a population totaling around 260 million individuals, Indonesia is the fourth-largest country in terms of population size. Its ethnic composition is characterized by variety, in fact wide variety, as the country contains hundreds of different ethnic groups and cultures. However, more than half of the population can be classified as belonging to two main ethnic groups. This section zooms in on the people of Indonesia.

These two groups are the Javanese (41 percent of the total population) and Sundanese (15 percent of the total population). Both groups originate from the island of Java, Indonesia's most populous island, which contains almost sixty percent of the country's total population. When the island of Sumatra is included, this figure rises to approximately eighty percent of Indonesia's total population, indicating a significant population concentration in the western part of the country. The most populous province is West Java (with more than 43 million people), while the least populous province is that of West Papua in the far eastern region of Indonesia (home to around 761,000 people).

Indonesia's national motto "unity in diversity" (Bhinneka Tunggal Ika) reflects the multitude of ethnic, cultural and linguistic varieties that can be found within the boundaries of a nation state that is the world's largest archipelago. Indeed, when you imagine an animist Papuan (in the far east of Indonesia) meeting a Muslim from Aceh (in the far west) there are more differences - in terms of religion, clothes, lifestyle, tradition, native language, etc. - between both persons than there are similarities.

Map of Indonesia

This diverse cultural makeup of Indonesia is the result of a long process of colonization initiated by the Dutch. In a time-span of about three centuries this small European nation managed to (gradually) expand its political power in the Archipelago - conquering the various indigenous kingdoms - until the present-day boundaries were established. In other words, during the formation of the Dutch colonial territory in Southeast Asia all these diverse cultures became part of a single political power that was later inherited by the Indonesian nationalists after Independence in 1945.

On the one hand, cultural diversity is a blessing for Southeast Asia's largest economy. Each culture offers something interesting and this is what attracts millions of foreign tourists to Indonesia every year (hence tourism is an important foreign exchange earner). For example, cultural relics such as the Borobudur and Prambanan in Central Java and Yogyakarta but also contemporary culture such as Balinese Hinduism are reasons to book a ticket to Indonesia. On the other hand, having a multitude of different beliefs (religions), traditions, ethnics and cultures also implies having difficulties in terms of governance. In fact, on various occasions there have been violent clashes between different groups within Indonesia that had their roots in ethnic or religious differences, events that undermined Indonesia's national motto.

Five Most Populous Provinces of Indonesia (in millions):

Province	Population     2000	Population     2010
West Java	35.8	43.1
East Java	34.8	37.5
Central Java	31.2	32.4
North Sumatra	11.6	13.0
Banten (Java)	8.1	10.6
Indonesia	206.3	237.6

Sources: Statistics Indonesia Population Census 2000 & 2010

This section discusses a number of important aspects regarding Indonesia's demographic composition. Topics that are discussed include Indonesia's population growth, age structure and urbanization. Each of these topics is linked to Indonesia's economic growth potential.

Indonesia's Population Growth

The annual national population growth rate of Indonesia between 2000 and 2010 stood at an average of 1.49 percent. This growth was highest in the province of Papua (5.46 percent) and lowest in Central Java (0.37 percent). Family planning in Indonesia is coordinated by the National Family Planning Coordinating Board (NFPCB), a government institution. Under president Suharto an effective family planning program was initiated in 1968 and - up to the present - continued by his successors. This program is a key strategy with regard to the country's economic development as a low population growth rate translates into a higher per capita gross domestic product (GDP) which translates into higher incomes, higher savings, higher investments and implies a fall in the poverty rate among the population. The national population growth rate was 1.2 percent in 2015 according to data from the World Bank.

Annual Population Growth Rate Indonesia

This section discusses a number of important aspects regarding Indonesia's demographic composition. Topics that are discussed include Indonesia's population growth, age structure and urbanization. Each of these topics is linked to Indonesia's economic growth potential.

Badan Pusat Statistik (BPS), the government's statistics agency only conducts thorough studies on the Indonesian population size once every decade. According to the latest study (2010) Indonesia had a total population of 237.6 million people. However, according to recent estimates (from various institutions) Indonesia is estimated to have more than 260 million inhabitants in 2017.

Badan Pusat Statistik (BPS), the government's statistics agency only conducts thorough studies on the Indonesian population size once every decade. According to the latest study (2010) Indonesia had a total population of 237.6 million people. However, according to recent estimates (from various institutions) Indonesia is estimated to have more than 260 million inhabitants in 2017.

The United Nations (UN) earlier stated that the population of Indonesia is estimated to exceed 270 million by 2025, exceed 285 million by 2035 and exceed 290 million by 2045. After 2050 the UN expects that the size of the Indonesian population starts to decline.

Population of Indonesia

The UN also projects that by 2050 two thirds of Indonesia’s population will live in urban areas. Over the last forty years the country has experienced a process of rapid urbanization, resulting in the current situation in which over half of Indonesia's total population resides in urban areas (see table below). For the economy this constitutes a positive development as urbanization and industrialization are necessary to grow into the ranks of a middle income country.

The biggest cities of Indonesia are found on the island of Java. Here we find the capital city of Jakarta that had more than 10 million inhabitants according to the latest official census (2011 data). The unofficial figure is probably much higher. Moreover, every morning a huge amount of workers travel from the satellite cities toward Jakarta to do their jobs. In the afternoon or evening they travel back to the satellite cities around Jakarta. This massive daily inflow and outflow of people causes severe traffic congestion in Jakarta.

After Jakarta, the biggest cities in Indonesia are Surabaya (East Java), Bandung (West Java), Bekasi (West Java), and Medan (North Sumatra).

Rural and Urban Population of Indonesia

	1995	2000	2005	2010	2015	2050
Rural Population  (% of total population)	64	58	52	50	46	33¹
Urban Population  (% of total population)	36	42	48	50	54	67¹

¹ indicates UN forecast - Source: World Bank

Age Structure of Indonesia

One important strength of Indonesia's demographic composition in relation to its economy is that the country has a young population. This young population implies a - potentially - large workforce (thus making it of vital importance that this workforce can be educated to obtain higher skills and can be absorbed by employment opportunities). Indonesia's total median age is 28.6 years (2016 estimate). This indicates that one half of the population is older than 28.6 years, while the other half is younger than this figure. When divided in sexes the female median age is one year older (29.1 years) as compared to the male counterpart (28.1 years).

Below we present a table that indicates the percentage shares of the Indonesian people categorized in three age groups and the corresponding division in sexes (in absolute numbers)

Indonesian Population by Sex and Age Group:

	% of total population	Male  (absolute)	Female  (absolute)
0-14 years	27.3	34,165,213	32,978,841
15-64 years	66.5	82,104,636	81,263,055
65 years and over	6.1	6,654,695	8,446,603

Source: CIA World Factbook

In 2010 around 19 percent of the Indonesian population was below ten years of age, around 37 percent was below twenty years of age, and around half of the population was below thirty years of age. Such numbers indicate that - from a demographic perspective - there is great potential for both productivity and creativity in Indonesia.

Demographics and Economic Waves

General Outline

A temper in population growth caused by decreases in fertility (which can be caused by matters such as better access to birth control, rising incomes, urbanization and higher levels of education for women) helps to stimulate a significant shift in the age distribution of the population towards those of the working age (but at a later stage decreases in mortality and fertility will cause an aging population). This shift is able to accelerate economic growth as the working age population increases while the (relative) number of dependent children declines.

This process can be thought of as constituting a series of waves. The first wave begins when this working age population is employed which results in increased production. Employment also implies higher incomes and consequently causes households to consume more products. Households might also save more due to the reduced number of child dependents which subsequently leads to increased investment, as well as rising capital stock and further increases in economic production.

The second demographic wave occurs when large portions of the population approach the end of their working lives and commence to save and invest for their retirement. Thus, the resulting increased capital accumulation may help to drive economic growth further. After this stage concern about the economy can arise because of stagnating population growth and an aging population.