Determinants of Regional Disparities in Indonesia: Lessons from Provincial Level

Muhammad Refqi () and Achmad Kemal Hidayat ()
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Muhammad Refqi: Master of Applied Economics, Padjadjaran University
Achmad Kemal Hidayat: Department of Economics, Padjadjaran University

No 201906, Working Papers in Economics and Development Studies (WoPEDS) from Department of Economics, Padjadjaran University

Abstract: The phenomenon of regional income inequality, which is experienced by both developed and developing countries, might also occur at the district level. This study measured the conditions of difference at both the national and provincial level. Measured using the Theil Inequality Index, income inequality was narrowed on the national scale and varied at the provincial scale. Furthermore, panel data regression was used to find the explanatory factors of regional income inequality using data from 2010 to 2017. According to the result, general allocation funds, road and education might be significant factors in decreasing income inequality, while GDP per capita, DBH (Revenue Sharing Funds), and spatial planning policies might produce the opposite impact. There is considerable influence of natural resources on inequality, and fiscal transfers were not able to quickly overcome these conditions. The government was advised to be more considerate about the importance of underdeveloped areas through fiscal transfer reformulation, potential economic maximization, and equitable development with proper spatial planning to promote income convergence and equalize welfare.

Keywords: regional disparity; Theil inequality index; Indonesia (search for similar items in EconPapers)
JEL-codes: H3 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2019-12, Revised 2019-12
New Economics Papers: this item is included in nep-sea and nep-ure
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