Regional Income Disparity in Indonesia: A Panel Data Analysis

Abstract

Regional income per capita disparity has become a crucial topic in Indonesia since the beginning of the 1990s. However, the main reasons for the existence of this income disparity remain a puzzle. This paper utilizes a panel data technique and the general specification growth model to estimate the provincial growth of income per capita in Indonesia for the 1993–2002 period to investigate the determinants of the country’s regional income disparity. The main findings are, first, despite the existence of regional income disparity, there is a conditional regional income per capita growth convergence; and second, saving of physical capital, trade openness and the contribution of the gas and oil sectors are the determinants of this provincial income per capita growth.