Disparities in Regional Productivity, Capital Accumulation, and Efficiency across Indonesia: A Convergence Clubs Approach

Abstract

This paper studies the evolution of regional disparities in labor productivity, capital accumulation, and efficiency across Indonesian provinces over the 1990-2010 period. Through the lens of a non-linear dynamic factor model, we test the hypothesis that all provinces would eventually converge to a common steady-state path. We find that the cross-provincial dynam- ics of labor productivity are characterized by two convergence clubs. The dynamics of the proximate determinants of labor productivity show some mixed results. On the one hand, physical and human capital accumulation are characterized by four and two convergence clubs, respectively. On the other hand, efficiency is characterized by a unique convergence club. The pa- per concludes suggesting that based on the provincial composition of each convergence club, considerable improvements in capital accumulation and efficiency are still needed to reduce regional disparities and accelerate pro- ductivity growth.

Carlos Mendez

Associate Professor of Development Economics

My research interests focus on the integration of development economics, spatial data science, and econometrics to understand and inform the process of sustainable development across regions.