Spatial Inequalities in Indonesia, 1996–2010: A Hierarchical Decomposition Analysis

This study analyzes spatial inequalities in Indonesia from 1996–2010 using the hierarchical decomposition method. It uses household expenditures rather than regional accounts and tries to investigate the contributions of spatial inequalities to overall expenditure inequality. We find that urban–rural disparity constitutes 15–25% of overall expenditure inequality. A large difference exists between urban and rural areas in the magnitude of inequality among districts. After controlling for the urban and rural difference, inequality among districts accounts for 15–25% of overall inequality. While disparity between five major island regions is negligible, inequalities between districts within provinces appear to have played an increasingly important role in both urban and rural areas. Given unequal geographic distributions of resource endowments, public infrastructure and economic activities, some spatial inequalities are inevitable. Nevertheless, sustained efforts are necessary to reduce spatial inequalities to facilitate national unity, cohesion and stability.