Growth Slowdown Analysis for Indonesia’s Subnational Economies: An Empirical Investigation

Abstract

Despite the positive growth performance of Indonesia over the past two decades, concerns have been expressed about whether the country would be caught in a middle-income trap. This paper offers a systematic analysis on growth slowdown for the Indonesian provinces, against the backdrop of other developing Asian economies including the ASEAN economies, Greater China economies and the Indian sub-national economies. Provincial-level analysis for Indonesia is appropriate given the size and great variations in the levels of development of the Indonesian provinces. By employing a logistic regression as well as Bayesian Model Averaging techniques, we ascertain the determinants of growth slowdown in Indonesian sub-national economies. Having identified the underlying drivers of growth slowdown in each income group, we also assess the predictive probability of each sub-national economy in Indonesia experiencing growth slowdown in the near future. Overall, we find that the Indonesian sub-national economies have a 10% chance of experiencing growth slowdown in the 2012–2017 period on average which is lower than the average predictive probabilities for Greater China and India sub-national economies.