IDEAS home Printed from https://ideas.repec.org/p/iuj/wpaper/ems_2023_02.html
   My bibliography  Save this paper

The Initial Impacts of the COVID-19 Pandemic on Regional Economies and Income Inequality in Indonesia: A Bi-dimensional Inequality Decomposition Analysis

Author

Listed:
  • Takahiro Akita

    (IUJ Research Institute, International University of Japan)

  • Armida Salsiah Alisjahbana

    (Universitas Padjadjaran)

Abstract

The COVID-19 pandemic has exerted an enormous impact on the Indonesian economy. In 2020, the country contracted by 2.7%. But, the impact has been spatially heterogeneous. Based on provincial GDP by industrial sectors, this study examines how structural changes caused by the pandemic have affected the determinants of inter-provincial inequality in Indonesia by conducting a bi-dimensional inequality decomposition analysis. It also investigates how the pandemic has affected provincial economies by performing a panel data regression analysis. According to the regression analysis, the pandemic appears to have affected the convergence speed of provincial economies. Provinces with larger GDP shares of the tourism sector were affected more severely by the pandemic. Meanwhile, the impact of the financial sector on provincial growth was not affected. According to the decomposition analysis, after the outbreak of the COVID-19, the tourism sector reduced its contribution to inter-provincial inequality. On the other hand, the IC and financial services sectors were not affected by the pandemic and raised their contributions. When Indonesia will recover from the pandemic, it is likely that the tourism sector will regain its position as an important determinant of inter-provincial inequality. However, the most important sectors in determining inter-provincial inequality will be IC, financial and business services sectors, particularly in the Java-Bali region. With the rapid advancement of IC, financial and e-business technologies, the roles of these high-inequality sectors are likely to increase unless policies that could facilitate spatial dispersion of these services activities are implemented.

Suggested Citation

  • Takahiro Akita & Armida Salsiah Alisjahbana, 2023. "The Initial Impacts of the COVID-19 Pandemic on Regional Economies and Income Inequality in Indonesia: A Bi-dimensional Inequality Decomposition Analysis," Working Papers EMS_2023_02, Research Institute, International University of Japan.
  • Handle: RePEc:iuj:wpaper:ems_2023_02
    as

    Download full text from publisher

    File URL: https://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2023_02.pdf
    File Function: First version, 2023
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Sala-i-Martin, Xavier X, 1996. "The Classical Approach to Convergence Analysis," Economic Journal, Royal Economic Society, vol. 106(437), pages 1019-1036, July.
    2. Takahiro Akita & Puji Agus Kurniawan & Sachiko Miyata, 2011. "Structural Changes and Regional Income Inequality in Indonesia: A Bidimensional Decomposition Analysis," Asian Economic Journal, East Asian Economic Association, vol. 25(1), pages 55-77, March.
    3. Jesus Lopez-Rodriguez, 2008. "Regional Convergence in the European Union: Results from a Panel Data Model," Economics Bulletin, AccessEcon, vol. 18(2), pages 1-7.
    4. Hal Hill & Budy Resosudarmo & Yogi Vidyattama, 2008. "Indonesia'S Changing Economic Geography," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 44(3), pages 407-435.
    5. Mathur, Ashok, 1983. "Regional Development and Income Disparities in India: A Sectoral Analysis," Economic Development and Cultural Change, University of Chicago Press, vol. 31(3), pages 475-505, April.
    6. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-625, April.
    7. Robert J. Barro & Xavier Sala-i-Martin, 1991. "Convergence across States and Regions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 107-182.
    8. Carluccio Bianchi & Federica Calidoni & Mario Menegatti, 2009. "Pitfalls in estimating β-convergence by means of panel data: an empirical test," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 56(4), pages 347-357, December.
    9. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 223-251, April.
    10. Asep Suryahadi & Ridho Al Izzati & Daniel Suryadarma, 2020. "Estimating the Impact of Covid-19 on Poverty in Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 56(2), pages 175-192, May.
    11. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    12. Armida Alisjahbana & Takahiro Akita, 2020. "Economic Tertiarization and Regional Income Inequality in a Decentralized Indonesia: A Bi-dimensional Inequality Decomposition Analysis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 151(1), pages 51-80, August.
    13. Jorge Garcia Garcia & Lana Soelistianingsih, 1998. "Why Do Differences in Provincial Incomes Persist in Indonesia?," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 34(1), pages 95-120.
    14. Yogi Vidyattama, 2013. "Regional convergence and the role of the neighbourhood effect in decentralised Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 49(2), pages 193-211, August.
    15. Hal Hill & Yogi Vidyattama, 2016. "Regional Development Dynamics In Indonesia Before And After The ‘Big Bang’ Decentralization," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(02), pages 1-26, June.
    16. John Gibson & Susan Olivia, 2020. "Direct and Indirect Effects of Covid-19 On Life Expectancy and Poverty in Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 56(3), pages 325-344, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Takahiro Akita & Armida Salsiah Alisjahbana, 2023. "The Initial Impacts of the COVID-19 Pandemic on Regional Economies in Indonesia: Structural Changes and Regional Income Inequality," Sustainability, MDPI, vol. 15(18), pages 1-19, September.
    2. Armida Alisjahbana & Takahiro Akita, 2020. "Economic Tertiarization and Regional Income Inequality in a Decentralized Indonesia: A Bi-dimensional Inequality Decomposition Analysis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 151(1), pages 51-80, August.
    3. 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.
    4. Yogi Vidyattama, 2016. "Inter-provincial migration and 1975–2005 regional growth in Indonesia," Papers in Regional Science, Wiley Blackwell, vol. 95, pages 87-105, March.
    5. Mendez-Guerra, Carlos & Kataoka, Mitsuhiko, 2020. "Disparities in Regional Productivity, Capital Accumulation, and Efficiency across Indonesia: A Convergence Clubs Approach," MPRA Paper 99322, University Library of Munich, Germany.
    6. Takahiro Akita & Awaludin Aji Riadi & Ali Rizal, 2019. "Fiscal Disparities in Indonesia under Decentralization: To What Extent Has General Allocation Grant(DAU) Equalized Fiscal Revenues?," Working Papers EMS_2019_05, Research Institute, International University of Japan.
    7. Takahiro Akita & Sachiko Miyata, 2018. "Spatial Inequalities in Indonesia, 1996–2010: A Hierarchical Decomposition Analysis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 138(3), pages 829-852, August.
    8. Takahiro Akita & Awaludin Aji Riadi & Ali Rizal, 2021. "Fiscal disparities in Indonesia in the decentralization era: Does general allocation fund equalize fiscal revenues?," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(6), pages 1842-1865, December.
    9. Lehmann, Hartmut & Silvagni, Maria Giulia, 2013. "Is There Convergence of Russia's Regions? Exploring the Empirical Evidence: 1995–2010," IZA Discussion Papers 7603, Institute of Labor Economics (IZA).
    10. Diana Gutiérrez Posada & Fernando Rubiera Morollón & Ana Viñuela, 2018. "Ageing Places in an Ageing Country: The Local Dynamics of the Elderly Population in Spain," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 109(3), pages 332-349, July.
    11. Ragdad Cani Miranti, 2021. "Is regional poverty converging across Indonesian districts? A distribution dynamics and spatial econometric approach," Asia-Pacific Journal of Regional Science, Springer, vol. 5(3), pages 851-883, October.
    12. Persson, Joakim, 1999. "Demographic and Per Capita Income Dynamics: A Convergence Study on Demographics, Human Capital, and Per Capita Income for the US States," Working Paper Series 156, Trade Union Institute for Economic Research.
    13. Guglielmo Caporale & Luis Gil-Alana, 2013. "Long memory in US real output per capita," Empirical Economics, Springer, vol. 44(2), pages 591-611, April.
    14. Cem Ertur & Julie Le Gallo & Catherine Baumont, 2006. "The European Regional Convergence Process, 1980-1995: Do Spatial Regimes and Spatial Dependence Matter?," International Regional Science Review, , vol. 29(1), pages 3-34, January.
    15. Aparna Lolayekar & Pranab Mukhopadhyay, 2017. "Growth Convergence and Regional Inequality in India (1981–2012)," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 15(2), pages 307-328, June.
    16. Juan Carlos Odar Z., 2000. "Diferencias departamentales de crecimiento. Un análisis de convergencia para Perú: 1961-1996," Apuntes. Revista de ciencias sociales, Fondo Editorial, Universidad del Pacífico, vol. 27(47), pages 5-57.
    17. Grafström, Jonas, 2017. "An Econometric Analysis of Divergence of Renewable Energy Invention Efforts in Europe," Ratio Working Papers 295, The Ratio Institute.
    18. Tunali, Çiǧdem Börke & Yilanci, Veli, 2010. "Are per capita incomes of MENA countries converging or diverging?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(21), pages 4855-4862.
    19. Stephen Dobson & Carlyn Ramlogan & Eric Strobl, 2006. "Why Do Rates Of Β‐Convergence Differ? A Meta‐Regression Analysis," Scottish Journal of Political Economy, Scottish Economic Society, vol. 53(2), pages 153-173, May.
    20. 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.

    More about this item

    Keywords

    Indonesia; COVID-19 pandemic; structural changes; inter-provincial income inequality; bi-dimensional inequality decomposition analysis;
    All these keywords.

    JEL classification:

    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iuj:wpaper:ems_2023_02. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kazumi Imai, Office of Academic Affairs (email available below). General contact details of provider: https://edirc.repec.org/data/gsiujjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.