Regional Disparity in Western and Eastern Indonesia

Abstract

Purpose: This study aims to analyze the regional disparity trend of Indonesia's in 2007-2015 and the factors affecting it. The study aims to encourage the gap to be reduced by appropriate development policies in Indonesia. Approach/Methodology/Design: The study uses panel data from 33 provinces from 2007 to 2015, so 297 observations. The analytical method uses two approaches, descriptive analysis with graphical comparison and panel regression analysis with a fixed-effect model. Findings: The results showed that inequality in the West is higher than inequality in the East. The results also found differences in factors affecting inequality in Western Indonesia Region (WIR) and Eastern Indonesia Region (EIR). The increase in electricity distribution and investment has a significant effect on reducing inequality at the WIR. Meanwhile, the development of road infrastructure has increased inequality in the WIR. There are similarities with different strengths that increasing investment can play a role in reducing regional disparity. Practical Implications: Thus, to reduce regional inequality, the Indonesian government and related parties need to encourage increased investment to develop electricity infrastructure in Western Indonesia and encourage employment in Eastern Indonesia. Originality/Value: There are diverse contributions in each region to the formation of GDP growth nationally. So, it is suspected of having occurred regional inequality in Indonesia. For this reason, research is needed to analyze whether disparities in regional development have occurred.