The impact of industrial development zones designation on the convergence of economic growth in East Java

Abstract

ABSTRACT Since 2008, the strategy to concentrate industrial areas in eight regions in East Java has rapidly accelerated economic growth. However, this strategy also increases regional income disparity. Therefore in the last 2019, Indonesian government design a policy through Presidential Decree No.80/2019 to develop additional industrial centres of East Java into sixteen regions. The main objectives of the policy are to improve regional disparities and to maintain high economic growth. Based on this condition, this study aims to evaluate whether this policy can reduce regional income disparities in East Java. This study modifies the Barro-Martin convergence model to assess the new policy. The model is estimated using panel data of 38 regions in East Java from 2010–2019. There are two results in this study; first, the industrial sector can accelerate economic growth; and second, the additional industrial centres policy tends to improve regional income disparity in East Java.