New Economic Geography Model Application to Indonesian Regencies and Cities 2016–2019

Abstract

To encourage economic growth to reduce the gap between provinces, the Indonesian government has implemented a decentralization policy implemented since 2001. Decentralization in Indonesia has been carried out until 2019 and has changed the country’s economic order. Researchers suspect that the development of the policy will impact the gap in the level of welfare between regencies and provinces in Indonesia. Armstrong and Taylor (2000) argued that the gap in the level of welfare between provinces should get important attention because this phenomenon will cause dissatisfaction, disappointment, and even resistance from people living in poor areas. This study implements the NEG framework model in dealing with regional disparities in Indonesia at the regencies and city levels, consisting of 514 regions. By use of quantitative method, the analysis used panel data regression analysis. The data analyzed are GRP per capita as the dependent variable and the independent variables are Domestic Market Access, Foreign Market Access, Urbanization, and Human Capital in 2016–2019. The novelty of this work is the first attempt to discuss the NEG model using panel data from all regencies and cities in Indonesia from 2016–2019. The application of the New Economic Geography Model framework in responding to the GRP gap per capita at the regency and city levels in Indonesia shows that the role of Domestic Market Access, Foreign Market Access, and Urbanization has a substantive impact on the GRP per capita gap between regencies and cities in Indonesia. Keywords: new economic geography, disparities, regions, regencies, cities, Indonesia. DOI: https://doi.org/10.55463/hkjss.issn.1021-3619.60.41