Inequality convergence in inefficiency and interprovincial income inequality in Indonesia for 1990–2010

Abstract

We use data envelopment analysis to measure the relative efficiency among Indonesia's provinces in using input to produce output over a 20-year period that includes the global economic crisis. We then employ the inequality decomposition technique of a Theil's second measure to explore the extent to which the efficiency factor contributes to interprovincial income inequality. Our efficiency analysis reveals that most Indonesian provinces improved their relative inefficiency considerably in both resource utilization and allocation. Moreover, the relative inefficiency became convergent across provinces for the period. However, several provinces with serious pure technical and scale inefficiencies still exist in 2010. The province of Yogyakarta critically underperformed in resource utilization, and Central Kalimantan and Papua operate at further suboptimum scales. The former needs to develop appropriate mechanisms to efficiently use its given resources, while the latter need to mitigate business-unfriendly regulations and deal with financial constraints. The inequality decomposition analysis shows that interprovincial convergence of inequality in overall technical inefficiency largely contributed to the reduction in income inequality. The convergence of inequality in resource utilization inefficiency had a greater impact on inequality convergence in overall technical inefficiency than in resource allocation inefficiency. In 2010, pure labor productivity became a substantial new factor in determining income inequality. Since this measure is affected by per capita physical and human capital and technology, the spatial allocation imbalance of these factors has become a new concern in Indonesia.

Disparities in regional productivity, capital accumulation, and efficiency across Indonesia: A club convergence approach

“…In the regional development literature, it has been argued that inter-provincial resource allocation and low efficiency are major concerns for Indonesia (Bendesa et al, 2016;Kataoka, 2018 | 805…”

“…Currently, the BPS only publishes historical statistics for 26 provinces. As a result, most previous studies about provincial convergence in Indonesia are based on this 26-province configuration (Garcia & Soelistianingsih, 1998;Kataoka, 2013Kataoka, , 2018Mendez, 2020;Sakamoto, 2007;Vidyattama, 2013Vidyattama, , 2014. Although conducting research based on 26 provinces (instead of 34) is not an optimal research setting, it allows both the construction of a balanced data set for multiple variables and the presentation of results in a way that is consistent with the provincial configuration used in most previous studies.…”

Interprovincial differences in labour force distribution and utilization based on educational attainment in Indonesia, 2002–2015

“…Given the regions of labour force, employment status, and the modifiable areal unit problem (MAUP) created by provincial separations, we consider only 30 provinces for each year during 2002–2015. Similar to Kataoka (), we aggregate data on new and existing provinces to tackle the MAUP. Figure shows the 2015 employment rate by province, reflecting regional aggregation.…”

“…Various inequality decomposition studies apply Cheng and Li () method (Alcalde‐Unzu, Ezcurra, & Pascual, ; Kataoka, ; Li & Dewan, ; Li & Zhao, ; Olaskoaga‐Larrauri, Alaez‐Aller, & Arrospide‐Zabala, ) and some have extensively adopted the inequality decomposition of social welfare expenditure without incorporating efficiency factors (for a brief summary, see Kataoka, ). Our study decomposes an employment variable by educational attainment per capita to provide new interpretations.…”

Comparative analysis of the regional efficiency in Serbia: DEA approach

“…Regional development policy manages with available resources in aim to gain regional growth and development, and/or to redistributes any undesirable income gaps. Moreover, planning the allocation of the country's economic potentials and measuring the archived efficiency in subnational regions is an essential framework for creating effective public policy (Kataoka, 2018).…”