Regional Income Disparities and Convergence Clubs in Indonesia: New District-Level Evidence 2000-2017

Harry Aginta, Anang Budi Gunawan and Carlos Mendez-Guerra

MPRA Paper from University Library of Munich, Germany

Abstract: 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 in Indonesia. Motivated by this background, this paper re-examines the regional convergence hypothesis at the district level in Indonesia over the 2000-2017 period. Using a novel data set, this study investigates the formation of multiple convergence clubs using non-linear dynamic factor model. The results indicate that Indonesian districts form five convergence clubs, implying that the growth of income per capita in 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 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, the identification of multiple convergence clubs at significantly different levels of income allows regional policy makers to identify districts facing similar challenges.

Keywords: regional income inequality; convergence; districts; Indonesia (search for similar items in EconPapers)
JEL-codes: O40 O47 R10 R11 (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-geo, nep-sea and nep-ure
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Citations: View citations in EconPapers (5)

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https://mpra.ub.uni-muenchen.de/104264/9/MPRA_paper_104264.pdf revised version (application/pdf)

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