This paper studies the evolution of regional disparities in labor productivity, capital accumulation, and efficiency across Indonesian provinces over the 1990-2010 period.Through the lens of a nonlinear dynamic factor model, we first test the hypothesis that all provinces would eventually converge to a common steady-state path. We reject this hypothesis and find that the provincial dynamics of labor productivity are characterized by two convergence clubs.We next evaluate the dynamics of the proximate sources of labor productivity and find some mixed results. On the one hand, physical and human capital accumulation are characterized by three and two convergence clubs, respectively.On the other hand, efficiency is characterized by a unique convergence club. The paper concludes by suggesting that, based on the provincial composition of each club and the common low level of efficiency across Indonesia, considerable improvements in both capital accumulation and efficiency are still needed to reduce regional disparities and accelerate productivity growth.
Indonesia is an archipelago country which comprises of two main parts, western and eastern regions and spread into over 500 districts. Each district has their own characteristics, especially in development aspect. Some districts have been growing faster on economic and social development, yet others still fall behind. Using Human Development Index and its components on education, health and economic variables over 2010-2018 period, this study aims to examine convergence on the regional human growth process and investigate the speed of convergence across districts. The result reveals convergence occurred on human development process and its determinants across districts during 2010-2018. Education variables are assumed as the main contributor for boosting the speed of convergence of human development. Spatial dependences are detected among districts, followed by the spatial clusters and spatial outliers through global and local spatial autocorrelation. Applying two spatial autoregressive models, spatial autoregressive lag model (SAR) and spatial autoregressive error model (SEM), confirmed that there is significant spatial spillovers.The speed of convergence for all variables are much declining after the inclusion of spatial lag and error model. As the policy implication, since regional inequality in term of human development is still a major issue, it will be a call for better coordination and cooperation within and between regions.
Reducing regional income disparities is a central challenge for promoting sustainable development in Indonesia. In particular, the prospect for these disparities to be reduced in the post-decentralization period has become a major concern for policymakers. Motivated by this background, this paper aims to re-examine the regional convergence hypothesis at the district level in Indonesia over the 2000-2017 period. By using non-linear dynamic factor model, this study analyzes novel data set to investigate the formation of multiple convergence clubs. The results indicate that Indonesian districts form five convergence clubs, implying that the growth of income per capita in Indonesian 514 districts can be clustered into five common trends. From the lens of spatial distribution, two common occasions can be observed. First, districts belonging to the same province tend be in the same club and second, the highest club is dominated by districts with specific characteristic (i.e., big cities or natural resources rich regions). From a policy standpoint, this findings of multiple convergence clubs at significantly different levels of income allows regional policy makers to identify districts facing similar challenges. It may have meaningful implications for regional development policies, including the call of inter-provincial development policy.
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