Indonesia’s Regional Disparities 2014–2023: Shift-Share and Community Strategy

Adibah Seila Nafaza (), Dea April Liandari () and Rifkanissa Azzahral ()
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Adibah Seila Nafaza: Department of Economics, Faculty of Economics and Business, University of Indonesia
Dea April Liandari: Department of Economics, Faculty of Economics and Business, University of Indonesia
Rifkanissa Azzahral: Department of Economics, Faculty of Economics and Business, University of Indonesia

No 202503001, Gadjah Mada Economics Working Paper Series from Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada

Abstract: Regional disparities in Indonesia remain a significant challenge despite various development policies, including a substantial increase in infrastructure investment during President Joko Widodo’s second term. This study employs shift-share analysis to examine the factors influencing interregional inequality, decomposing it into three components: industry mix, productivity differentials, and allocative efficiency. The findings show that productivity differentials across regions are the dominant factor driving inequality, highlighting the uneven distribution of investments in technology and human capital. As a policy recommendation, this study proposes the Community-Based Development (CBD) approach to reduce inequality. CBD integrates local community participation with government policies that consider cultural norms and local wisdom, ensuring communities become the primary agents of development. This approach also helps strengthen public trust in development programs. By adopting CBD, a more balanced distribution of welfare between urban and rural areas is expected, contributing to inclusive and sustainable regional development in Indonesia.

Keywords: Shift-Share Analysis; Productivity; Inequality Decomposition; Interregional Disparities; Community-Based Development (search for similar items in EconPapers)
JEL-codes: E6 O1 O4 R5 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2025-03
New Economics Papers: this item is included in nep-sea
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