Content area
Full text
Keywords:
intra-provincial trade, international trade, convergence, TFP growth
This study aims to investigate the potential convergence process of total factor productivity (TFP) among 33 provinces in Indonesia in a period between 2011 and 2017. It is the first study that captures the effect of intra-provincial trade and international trade on the TFP convergence. The authors employ stochastic frontier analysis to identify the TFP and generalized methods of moment (GMM) to examine the convergence process. The result of this study confirms that the TFP convergence process in Indonesia occurred in 2011-2017. Concerning intra-provincial and international trades, the study discovered that neither of them promotes TFP growth. Rather, except for the international import, they reduce the gap of TFP growth amongst provinces. The result demonstrates that intraprovincial exports reduce the TFP growth gap by 19.7% more than international exports. This finding indicates that intra-provincial exports are more efficacious in reducing regional inequality. The same is true for the intra-provincial import. This finding delivers essential policy implications such as streamlining the development policies across provinces, albeit the prevailing decentralization program. This should inform the formulation of regional regulations so these will not hinder the provincial growth convergence.
(ProQuest: ... denotes formulae omitted.)
Introduction
The issue of regional disparity became a central point of attention in Indonesia's development master plan, specifically in relation to inequality, resource endowment and population distribution. Attention to this issue has significantly grown after decentralisation was formalised by Indonesian Laws 22/1999 and 25/1999 and was then implemented in 2001 (Vidyattama 2013). Ever since, the central government has been delegating responsibilities in the areas of education, agriculture, industry, investment, infrastructure and trade to regional authorities at province or district levels. As such, there is a possibility of convergence among regions and it is essential to seek the momentum (Rodríguez-Pose-Ezcurra 2010).
Since trade is part of the decentralisation agenda, there is a pressing need for regional authorities to foster economic growth through international and intraprovincial trade activities. Trade activities are pivotal drivers of economic growth as regions can engage and maintain relationships with advanced markets, which can offer sophisticated technology (Blalock-Veloso 2007). Export activities, for instance, are associated with the ability to produce and develop high-standard products to satisfy the demanding advanced markets. Consequently, a region...