Structural Change and Regional Economic Growth in Indonesia

Abstract

This paper investigates the relationship between structural change and regional economic growth in Indonesia. We utilise the shift-share method for 30 provinces over the period 2005–18 as a measure of structural change. We demonstrate that structural change has occurred across provinces, even though it is slowing towards an agricultural–services transition. By employing panel data models, this study shows that structural change is a significant determinant of growth. Structural change matters for growth if there is an increase in productivity within sectors. This study is unable to show that the movement of labour across sectors leads to higher economic growth. However, the increase in productivity within sectors has more impact on regional growth on a longer-term basis.