Convergence Analysis of Economic Growth in East Java

Sri Karima Amalia,Dwi Budi Santoso,Sasongko Sasongko

doi:10.15294/jejak.v11i1.9643

Abstract

Convergence and divergence of economic growth is a regional economic issue. The concept of convergence occurs when areas with poor economies tend to grow faster than areas with a rich economy whereas divergence occurs otherwise. East Java has a high economic growth but has a high inequality between districts/municipalities as well. Based on the concept of the inverted U-shape of the Kuznets curve, the East Java situation thus indicates that East Java is at the starting point of economic development. Therefore, it is necessary to develop high economic growth with low inequality through acceleration of convergence by knowing the level of convergence of economic growth and acceleration factors of economic growth convergence of East Java. This study uses panel data from 38 districts/municipalities in East Java between 2005 and 2014 by adopting the model Barro & Sala-i-Martin (1992) then the model specification in answering research objectives are sigma convergence, absolute convergence, and conditional convergence. The estimation results show that in East Java economic growth is convergent at a low level so that efforts need to accelerate the convergence that can be reached through 5 (five) development policies, (i) equalization of basic infrastructure such as access equity (ii) equal distribution of energy availability, (iii) equalization of investment, (iv) equal distribution of labor force, and (v) equality of labor productivity

Highlights

The definition of economic development proposed by Todaro and Smith (2011) is a multidimensional process involving fundamental changes in social structures, attitudes of communities and national institutions aimed at accelerating growth, reducing inequality and alleviating poverty
If positive means divergence, and negative means convergence, ROAD is a road infrastructure, is the ratio of the length of the road is good and medium per capita, ELEC is electrical infrastructure, is per capita electricity sold ratio, INVEST is a third-party funds,SMPT is the percentage of the population who graduated high school and university, UMK is the Minimum Wage Value districts / municipalities, AK is the labor force level, PRODTK is the ratio of output value per worker, and GOV is the ratio of total government expenditure per GDP
Absolute convergence is a natural convergence that occurs without the influence of policies and growth factors whereas conditional convergence occurs because it is influenced by policies and factors that affect growth

Summary

Introduction

The definition of economic development proposed by Todaro and Smith (2011) is a multidimensional process involving fundamental changes in social structures, attitudes of communities and national institutions aimed at accelerating growth, reducing inequality and alleviating poverty. In regional economic development, the objectives of economic development in general can be imposed in each of the different regions in order to achieve equitable distribution of development across regions reflected through the acceleration of growth, reduction of inequality (convergence), and poverty alleviation in each region. As Lant Pritchett points out, that developed countries today have enjoyed a much higher average rate of economic growth than developing countries over two centuries, a process known as divergence (Todaro & Smith, 2011). This indicates that the regional economic development objectives have not been achieved because the inequality between regions is widening (divergence)

Methods

Results

Conclusion