Basic Infrastructure Development and Regional Disparity in Indonesia: Toward Inclusive Growth

Abstraksi

Abstract: One of major challenges for national economic development in Indonesia is regional development inequality. This study aims to investigate the contribution of basic infrastructure development on reducing regional disparity. The dynamic panel data of provincial data is applied to estimate the rate of convergence and impact of basic infrastructure development on regional income. GMM Blundell and Bond model is employed to handle endogeneity problem. The results show that Indonesia is still facing significant problem of regional disparity, indicated by a low rate of income convergence among provinces. The Williamson curve is used to support such evidence. This means that the historical evidence on convergence process of regional income among regions in Indonesia is not revisited. Basic infrastructure development plays an important role to boost the regional growth, but its impact on convergence rate is still question marked . This study suggests basic infrastructure development is not optional for regional development in Indonesia. However it could not be treated as solely instrument to achieve inclusive growth targets.