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Disparities in regional productivity, capital accumulation, and efficiency across Indonesia: A club convergence approach

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  • Carlos Mendez
  • Mitsuhiko Kataoka

Abstract

This paper studies the evolution of regional disparities in labor productivity, capital accumulation, and efficiency across Indonesian provinces over the 1990–2010 period. Through the lens of a nonlinear dynamic factor model, we first test the hypothesis that all provinces would eventually converge to a common steady‐state path. We reject this hypothesis and find that the provincial dynamics of labor productivity are characterized by two convergence clubs. We next evaluate the dynamics of the proximate sources of labor productivity and find some mixed results. On the one hand, physical and human capital accumulation are characterized by three and two convergence clubs, respectively. On the other hand, efficiency is characterized by a unique convergence club. The paper concludes by suggesting that, based on the provincial composition of each club and the common low level of efficiency across Indonesia, considerable improvements in both capital accumulation and efficiency are still needed to reduce regional disparities and accelerate productivity growth.

Suggested Citation

  • Carlos Mendez & Mitsuhiko Kataoka, 2021. "Disparities in regional productivity, capital accumulation, and efficiency across Indonesia: A club convergence approach," Review of Development Economics, Wiley Blackwell, vol. 25(2), pages 790-809, May.
    • Handle: RePEc:bla:rdevec:v:25:y:2021:i:2:p:790-809
    DOI: 10.1111/rode.12726
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    References listed on IDEAS

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    Cited by:

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    2. Anang Budi Gunawan & Carlos Mendez & Shigeru Otsubo, 2021. "Provincial income convergence clubs in Indonesia: Identification and conditioning factors," Growth and Change, Wiley Blackwell, vol. 52(4), pages 2540-2575, December.
    3. Joshua Dzankar Zoaka & Hasan Güngör, 2023. "Effects of financial development and capital accumulation on labor productivity in sub-Saharan Africa: new insight from cross sectional autoregressive lag approach," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-18, December.
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    5. Minh-Thu Thi Nguyen, 2024. "Provincial income convergence in Vietnam: spatio-temporal dynamics and conditioning factors," Asia-Pacific Journal of Regional Science, Springer, vol. 8(2), pages 429-460, June.

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