The Role of Mineral and Coal Mining on Interregional Convergence-Divergence Economic Trend in Indonesia

Abstract

Within the last 35 years of 1975-2010 it was shown that within 1975-2000 the trend of convergence of economy between the provincial index of gross regional domestic product (GRDP) per capita with the national index of gross domestic product (GDP) per capita figured out by the ratio of the GRDP per capita of the richest province to the poorest province equaled 21 to 25 in 1975 toward around 12 in 2000, even though on the post 2000 the provinces which were before 2000 under the national GDP per capita index (<100) declining and lesser. The provinces which have reached the points of convergence by the year of 2000 are Aceh, North Sumatera, West Sumatera, South Sumatera, East Java, Central Kalimantan, South Kalimantan and Bali. It is indicated that within the next 30 years the several other provinces which could reach the points of convergence are West Java, Central Java, DI Yogyakarta, West Kalimantan, Riau, Papua and East Kalimantan. However, the other several provinces which are not fully convergent in the meaning of almost consistently existing above the national GDP per capita (what so called the ‘surplus’ provinces), are Aceh, DKI Jakarta, and Bali. Moreover, on the other side, several provinces with GRDP per capita which consistently exist below the national GDP per capita (what so called the ‘minus’ provinces) with the downward sloping regression or with the gently upward sloping regression. Toward achieving points of economic convergence, those ‘minus’ provinces have to trigger their potential prime sectors, which have high economic multipliers.In generating their regional income, it is shown that almost all the provinces of Indonesia still rely on the primary sectors such as mineral and agriculture, with the consequences of low added value. It is expected that mineral and coal and its downstream industries could be able to support the ‘minus’ regions to converge to the national index. Augmenting the regional economic growth, the regions should develop the secondary and services industry which have high value-added multiplier to extend the across-regional trade as well as between the regions in the country with the neighbors’ regions through subregional economic cooperation. Methodology applied in this study is based on regional economic modeling and observation.