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Determinants of Regional Disparities in Indonesia : Lessons from Provincial Level

Author

Listed:
  • Muhammad Refqi

    (Master of Applied Economics, Padjadjaran University)

  • Achmad Kemal Hidayat

    (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.

Suggested Citation

  • Muhammad Refqi & Achmad Kemal Hidayat, 2019. "Determinants of Regional Disparities in Indonesia : Lessons from Provincial Level," Working Papers in Economics and Development Studies (WoPEDS) 201906, Department of Economics, Padjadjaran University, revised Dec 2019.
    • Handle: RePEc:unp:wpaper:201906
    as

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    File URL: http://ceds.feb.unpad.ac.id/wopeds/201906.pdf
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    References listed on IDEAS

    as
    1. Takahiro Akita, 2002. "Income Inequality in Indonesia," Working Papers EMS_2002_02, Research Institute, International University of Japan.
    2. A. B. Atkinson, 2003. "Income Inequality in OECD Countries: Data and Explanations," CESifo Economic Studies, CESifo Group, vol. 49(4), pages 479-513.
    3. Mohsen Bahmani-Oskooee & Scott W. Hegerty & Harvey Wilmeth, 2008. "Short-run and long-run determinants of income inequality: evidence from 16 countries," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 30(3), pages 463-484, April.
    4. Takahiro Akita, 2003. "Decomposing regional income inequality in China and Indonesia using two-stage nested Theil decomposition method," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 37(1), pages 55-77, February.
    5. Akita, Takahiro & Kawamura, Kazumi, 2002. "Regional income inequality in China and Indonesia: A comparative analysis," ERSA conference papers ersa02p432, European Regional Science Association.
    6. Bourguignon, Francois, 1979. "Decomposable Income Inequality Measures," Econometrica, Econometric Society, vol. 47(4), pages 901-920, July.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    regional disparity; Theil inequality index; Indonesia;
    All these keywords.

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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