4 - Dynamics of Regional Economic Convergence

Summary

In the last two decades, international theory and econometric analysis have linked regional disparities with decentralization and trade liberalization policies. This can be measured via local economic welfare mobility following trade liberalization (Quah 1993), local endowments (Martin and Sunley 1998) and local economic convergence rates (Barro and Sala-I-Martin 1991).

Furthermore, empirical studies have resulted in varied perspectives over the impact of these state restructuring. The regional disparity studies in Indonesia during the New Order period were mainly studied at the provincial levels (Akita and Lukman 1995; Garcia and Soelistianingsih 1998), while there are emerging studies on the regional disparities at the district level for the post-decentralization period (McCulloch and Syahrir 2008; McCulloch and Malesky 2011; Aritenang 2012).

The analysis of industry types (Fan and Scott 2003), industry concentration (Sjöberg and Sjöholm 2004), main economic sectors and the existing political order (Shankar and Shah 2003) have all affected the level of disparities between and within countries and the trade liberalization policy regime in particular (Petrakos, Rodríguez-Pose and Rovolis 2005). There are also a growing number of studies on the local impact of state restructuring, such as the impact of trade liberation on regions with borders (Logan 2008; Rodríguez-Pose and Sanchez-Reaza 2005) and the local infrastructure (Rivas 2007). These studies confirmed Heng's (2012) argument that the most significant impact of the globalized economy was at the local level, rather than national or provincial level. This study examined the impact of decentralization and the ASEAN Free Trade Agreement (AFTA) on districts in Indonesia.

This chapter is organized as follows: the first section is a short description of data and spatial unit of analysis and followed by a section on exploratory analysis of economic growth in terms of time series and geography between 1993 and 2010. The next section examines spatial distribution of economic growth and manufacturing industries. The final section discusses the research findings from this chapter.

RESEARCH DATA DESCRIPTION

This chapter uses the BPS publication of regional list in 1997 based on the number of districts before the decentralization. In the 1997 regional list there are 26 provinces and 292 districts with 4,088 overall observations for the period between 1993 and 2010.