IDEAS home Printed from https://ideas.repec.org/p/iuj/wpaper/ems_2026_04.html

Special Economic Zones, COVID-19 Pandemic, and Interprovincial Income Inequality in the Indonesian Manufacturing Industry

Author

Listed:
  • Takahiro Akita

    (IUJ Research Institute, International University of Japan)

  • Armida Salsiah Alisjahbana

    (Faculty of Economics and Business, Universitas Padjadjaran)

Abstract

Using provincial GDP by manufacturing sectors, this study examines how structural changes have affected interprovincial inequality in manufacturing GDP in Indonesia. Particularly, it investigates the impact of structural changes associated with the establishment of special economic zones (SEZs) and the COVID-19 pandemic. The center of manufacturing growth appears to have shifted from labor-intensive to capital-intensive sectors. Interprovincial inequality in manufacturing GDP declined slightly prior to the pandemic and stabilized afterward. However, disparity among the five regions - Sumatra, Java-Bali, Kalimantan, Sulawesi, and Eastern Indonesia - declined markedly, reducing its contribution to overall interprovincial inequality. This reduction became particularly pronounced in the late 2010s, when several SEZs became operational. However, it was accompanied by rising interprovincial inequality within Sumatra and Sulawesi, likely driven by the establishment of SEZs. Most manufacturing sectors were severely affected by the pandemic. The transport equipment sector was hit hardest, followed by the textiles and machinery sectors. However, overall interprovincial inequality remained largely unaffected. The manufacturing industry exhibits very high interprovincial inequality. With further development in the eastern parts of Indonesia, particularly Sulawesi and Eastern Indonesia, disparities among the five regions are likely to decline. However, if such development is enclave-type, concentrated in a few SEZs, it may lead to rising interprovincial inequality. To alleviate rising interprovincial inequality, it is imperative to promote labor-intensive sectors, particularly in the eastern parts of Indonesia, as they are inequality-reducing. Industrial infrastructure and supporting manufacturing activities must also be strengthened.

Suggested Citation

  • Takahiro Akita & Armida Salsiah Alisjahbana, 2026. "Special Economic Zones, COVID-19 Pandemic, and Interprovincial Income Inequality in the Indonesian Manufacturing Industry," Working Papers EMS_2026_04, Research Institute, International University of Japan.
    • Handle: RePEc:iuj:wpaper:ems_2026_04
    as

    Download full text from publisher

    File URL: https://www2.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2026_04.pdf
    File Function: First version, 2026
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-625, April.
    3. Harry Aginta & Anang Budi Gunawan & Carlos Mendez, 2023. "Regional income disparities and convergence clubs in Indonesia: new district-level evidence," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 28(1), pages 101-132, January.
    4. Takahiro Akita, 2002. "Regional Income Inequality In Indonesia And The Initial Impact Of The Economic Crisis," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 38(2), pages 201-222.
    5. Mohammad Zulfan Tadjoeddin & Widjajanti I. Suharyo & Satish Mishra, 2001. "Regional Disparity and Vertical Conflict in Indonesia," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 6(3), pages 283-304.
    6. 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.
    7. Dani Rodrik, 2016. "Premature deindustrialization," Journal of Economic Growth, Springer, vol. 21(1), pages 1-33, March.
    8. Graham Pyatt & Chau-nan Chen & John Fei, 1980. "The Distribution of Income by Factor Components," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(3), pages 451-473.
    9. Ragdad Cani Miranti & Carlos Mendez, 2023. "Social and Economic Convergence Across Districts in Indonesia: A Spatial Econometric Approach," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 59(3), pages 421-445, September.
    10. 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.
    11. Shorrocks, A F, 1982. "Inequality Decomposition by Factor Components," Econometrica, Econometric Society, vol. 50(1), pages 193-211, January.
    12. Bourguignon, Francois, 1979. "Decomposable Income Inequality Measures," Econometrica, Econometric Society, vol. 47(4), pages 901-920, July.
    13. J.S. Uppal & Budiono Sri Handoko, 1986. "Regional Income Disparities in Indonesia," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 34, pages 287-304.
    14. 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.
    15. 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.
    16. Shankar, Raja & Shah, Anwar, 2003. "Bridging the Economic Divide Within Countries: A Scorecard on the Performance of Regional Policies in Reducing Regional Income Disparities," World Development, Elsevier, vol. 31(8), pages 1421-1441, August.
    17. Adiwan F. Aritenang & Aryani N. Chandramidi, 2020. "The Impact of Special Economic Zones and Government Intervention on Firm Productivity: The Case of Batam, Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 56(2), pages 225-249, May.
    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 & 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.
    2. 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.
    3. 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.
    4. 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.
    5. Mitsuhiro Hayashi & Mitsuhiko Kataoka & Takahiro Akita, 2012. "Spatial Dimensions of Expenditure Inequality and the Role of Education in Indonesia: An Analysis of the 2008-2010 Susenas Panel," Working Papers EMS_2012_21, Research Institute, International University of Japan.
    6. 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.
    7. 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.
    8. 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.
    9. Takahiro Akita, 2002. "Regional Income Inequality In Indonesia And The Initial Impact Of The Economic Crisis," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 38(2), pages 201-222.
    10. Marco Ranaldi, 2016. "On the Measurement of Functional Income Distribution," Documents de travail du Centre d'Economie de la Sorbonne 16051, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    11. Marco Ranaldi, 2018. "On the Measurement of Functional Income Distribution," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01379229, HAL.
    12. Lwin Lwin Aung & Peter Warr, 2021. "Decomposing changes in inequality: Evidence from Myanmar," Review of Development Economics, Wiley Blackwell, vol. 25(3), pages 1172-1196, August.
    13. C. Chameni Nembua, 2008. "The 'natural' bidimensional decomposition of inequality indices: evaluating factor contributions to households welfare inequality in Cameroon, 1996-2001," Applied Economics Letters, Taylor & Francis Journals, vol. 15(12), pages 963-970.
    14. Stéphane Mussard & Michel Terraza, 2009. "Décompositions des mesures d'inégalité : le cas des coefficients de Gini et d'entropie," Recherches économiques de Louvain, De Boeck Université, vol. 75(2), pages 151-181.
    15. Takahiro Akita & Armida S. Alisjahbana, 2001. "The Economic Crisis and Regional Income Inequality in Indonesia," Working Papers EMS_2001_06, Research Institute, International University of Japan.
    16. Carlo V. Fiorio, 2006. "Understanding Inequality Trends:Microsimulation Decomposition for Italy," STICERD - Distributional Analysis Research Programme Papers 78, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    17. Michele Giammatteo, 2007. "The bidimensional decomposition of inequality: A nested Theil approach," LIS Working papers 466, LIS Cross-National Data Center in Luxembourg.
    18. Mitsuhiko Kataoka, 2018. "Correction to: Inequality convergence in inefficiency and interprovincial income inequality in Indonesia for 1990–2010," Asia-Pacific Journal of Regional Science, Springer, vol. 2(2), pages 315-315, August.
    19. Teixidó Figueras, Jordi & Duro Moreno, Juan Antonio, 2012. "Ecological Footprint Inequality: A methodological review and some results," Working Papers 2072/203168, Universitat Rovira i Virgili, Department of Economics.
    20. 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.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • 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_2026_04. 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: Toshiyuki Moriyama, 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.