The Underlying Factors of Regional Income Disparities in Indonesia

Abstract

An increasing of regional data availability has revived of scholars’ interest in regional economic growth and disparities. The main reason for this revival came from attempts to improve the predictive ability of neoclassical model of growth. The objectives of this paper are to examine per capita gross regional product growth disparities, to check the existence of sigma and beta convergence across Indonesian provinces and to identify the underlying factors that affect per capita gross regional product growth. This is a quantitative study, and by making use of Coefficient of Variation and the Neoclassical Growth Model we found that The per capita gross regional product growth disparities tend to increase in the period of study, however, the existence of conditional beta convergence also implies. The underlying factors that are identified affect real per capita GRP growth are export, Foreign Direct Investment, Inflation and government expenditure.