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Capital Mobility Among Provices in Indonesia

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Abstract

This paper examines the flows of capital within Indonesia. The hypothesis being that capital is perfectly mobile among regions with Indonesia, and that capital is concentrated in the Java and Sumatra islands. To test the hypothesis, savings and investment rates are gathered from the Indonesian Regional Gross Domestic Product and compared in different regions with a low regional correlation indicating capital mobility. Economic literature is reviewed to understand some factors that influence savings and investment behavior; they are demographics, real interest rate, regional isolation, government policies. The regression work uses two models with savings e stimated in deferent ways. The first model states savings as the regional trade balance, which is the pure savings of regions. The second model states savings as the sum of regional trade balance and regional investment. After the regression results are discussed, the role of the banking sector and a brief financial history are described. The Java regions have experienced centralization of funds, but in comparison other regions with high resources such as Aceh, East Kalimantan, Irian Jaya (West Papua), have only a small amount of GDP.

Suggested Citation

  • Muliadi Widjaja, 2002. "Capital Mobility Among Provices in Indonesia," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0220, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    • Handle: RePEc:ays:ispwps:paper0220
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    File URL: http://icepp.gsu.edu/files/2015/03/ispwp0220.pdf
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    Keywords

    Indonesia; GDP; capital;
    All these keywords.

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