REGIONAL INCOME AND ITS CONVERGENCE IN INDONESIA

Sri Kurniawati

doi:10.32479/ijefi.8689

Abstract

This study aims to calculate and analyze whether or not a decline occurs in regional income inequality (sigma convergence). Additionally, it attempts to examine the ability of low-income provinces to catch up the provinces with a high regional income, neither controlled nor (absolute convergence and conditional convergence). Finally, the study calculates the speed and time needed to catch up to half of the lags. The first objective of thestudy was answered by using the coefficient of variation. The second objective was answered by the First Difference GMM (FD GMM) method, and the third objective was answered by using a formula for calculating the convergence speed expressed by Feldkircher (2006), and the half convergence formula from Barro & Sala-i-Martin (1995). This research figured out that sigma convergence occurreds after divergence. The research also reported no convergence of regional income beta, in both absolute and conditional convergences. Finally, the time needed to catch up the half of the lags in non-conditional beta convergence was shorter than conditional beta convergence.

Highlights

Several countries in the world have been economically and socially disadvantaged, but some others have managed to become developed countries such as Korea, Taiwan and Japan
The results showed that there was a conditional convergence of regional income but government spending had a negative impact on economic growth and was not significant
The results show that regional income experienced divergence at the beginning of the period

Summary

Introduction

Several countries in the world have been economically and socially disadvantaged, but some others have managed to become developed countries such as Korea, Taiwan and Japan. In the period 1911-1940, Korea and Taiwan experienced a rapid economic growth, especially in the late 1930s, In the 1960s the growth of Korea’s per capita income grew to 6.8% and Taiwan increased to 6.2%, surpassing the country that was originally much richer (Rodrik et al, 1995). It makes Korea’s economy the eighth largest in the world. In the 1970s, Taiwan, which initially received assistance from the United States (US) in the form of investment, could grow faster (growth miracle) than the US (Lin, 2003)

Objectives

Findings

Discussion

Conclusion