Islamic Economics from Munjul - Ekonomi Islam Untuk Indonesia Lebih Baik

Technology and Convergence in Indonesia ...

Almost three decades after the pioneering work of Esmara (1975), technology has not yet received enough attention as a determinant of regional disparities in Indonesia. This paper views technological transfer seriously as the main driver of convergence in regional income. As suggested by the old and new growth theory, we found that technology plays a significant role in explaining cross-province differences in growth rate. We also found that government policies have a significant influence in promoting technological diffusion among the regions, and hence on rapid and sustainable regional economic growth.

Convergence is a dynamic process in Indonesia. This study documents income disparity across province that have gone up and down in the last 25 years. Disparity increases during the unstable periods and decreases during the good times.
We have shown that contribution of TFP to regional output growth is small. Rapid regional growth is mostly due to capital accumulation. This result has important implications as regional growth can not be sustained in the long-run.
We have also shown that regional inequality has a similar pattern with TFP growth. We suggest that there is a close relationship between them. Higher productivity growth in poorer regions will lead income to converge.
We explored this hypothesis and found that productivity growth is a significant factor in regional convergence. Once we take into account technological differential across provinces, the convergence rate increases significantly. This indicate that there is a large gap in technology level across provinces.
Furthermore, we have found that several macroeconomic indicators have a significant effect on regional productivity growth. We conclude that the government has an important role to play in order to encourage technological diffusion in backward regions to promote its growth, and hence, reduce regional inequality.
We have shown that income disparities across regions are likely to remain substansial. Relying on market forces alone to remove subnational inequality is not enough. For this reason, direct interventions may be needed to ensure that poorer regions grow more rapidly than advanced ones. But there is no easy way out. The surge of regional development policy since the beginning of economic development has failed to remove regional inequality. Our findings suggest that technological diffusion offers considerable promise.

Full Paper:
Yusuf Wibisono. "Technology and Convergence in Indonesia", Economics and Finance in Indonesia, Vol. 53, No. 2, 2005, pp. 215-236.

Labels: Ekonomi Regional

posted by islamic economics from munjul @ Tuesday, January 03, 2006