Economic Growth and Structural Changes in Indonesia

Transcription

1 Economic Growh and Srucural Changes in Indonesia Misuhiko Kaaoka Deparmen of Economics, Chiba Keizai Universiy, Chiba, Japan I. Background and Obecives Inroducion Under marke-oriened facor mobiliy, facor inpus (capial and labor) relocae o regions offering higher reurns. If producers move o he mos profiable locaions for plans and workers move o provinces wih he highes wages, he more (less) he facor inpus in subnaional regions wih higher produciviies, he greaer he increase (decrease) in naional oupu. The sandard neoclassical economics lieraure ha analyzes naional growh considers wo sources: increase in facor inpus and produciviy growh. However, he exen o which inerregional facor mobiliy has conribued o a naional economy has been infrequenly examined because of regional daa consrains. This research examines efficiency growh in inerregional resource allocaion, which is aribued o inerregional allocaion of facor inpus from low-produciviy o high-produciviy regions. II. Mehodology and Daa II.1 Mehodology: Efficiency Index and Growh The efficiency growh in inerregional resource allocaion, measured by growh in efficiency index, is compued by he following wo empirical resuls: (i) esimaion resuls in he province-level regional producion funcions and (ii) Pareo-opimal inerregional allocaion of he facor inpus. The efficiency index is calculaed by comparing acual naional oupu values wih he efficienly allocaed naional value a which social welfare is maximized. The index comprises efficiencies in resource uilizaion and resource allocaion in he naional economy, employing wo ypes of oupus: efficienly uilized GDP (hereafer referred o as poenial GDP ) and efficienly allocaed GDP (hereafer referred o as opimal GDP ). The poenial GDP is he value of GDP when resources are fully employed wihou reallocaing resources across provinces, while he opimal GDP is he value of GDP when oal social welfare is maximized by reallocaing resources across provinces. Le, *, and year, respecively. The efficiency index, be acual GDP, poenial GDP, and opimal GDP in a naional economy in E, represens he inerrelaionships among he hree GDP ypes, and can be expressed as he acual-o-opimal GDP raio of a naion in year, where E = U E and = * * i = E U E A A E refer o efficiency in uilizaion (hereafer referred o as he uilizaion efficiency index ) and efficiency in allocaion (hereafer referred o as he allocaion efficiency index ), respecively. Similarly, aking he firs derivaive of he righ-hand side of Equaion (1) wih respec o ime, he efficiency index can be expressed as U A E = E + E (2) (1)

2 Equaion (2) presens he addiive decomposiion of he growh in efficiency index ino he sum of growh in uilizaion efficiency and allocaion efficiency indexes. II.1.1 Provincial Producion Funcion A simple Cobb-Douglass aggregae producion funcion for each province i is employed and i is assumed coefficiens for variables may change over ime ( i ) = α + α1 i + α 2 + β1 ln( X i ) + β ln( X i ) + ε i ln 0 2, (3) where = GDP, α = coefficien indicaing oal facor produciviy (TFP), and X = inpu facors; β represens elasiciy values of he corresponding inpu facor. The inpu facor refers o boh capial and labor variables in his sudy. For each provincial funcion, a consan reurn of scale wihin each ime period is assumed: B = 1. II.1.2 Welfare Maximizing Inerregional Resource Allocaion In he firs fundamenal heorem of welfare economics, a perfec compeiion across provinces leads o a Pareo-opimal inerprovincial resource allocaion. For any given year, efficien allocaion of resources can be deermined by a compuaional problem in resource allocaion, which is equivalen o solving a small compuable general-equilibrium model wih he obecive funcion of maximizing social welfare, subec o echnology and resources consrains. The echnology consrain refers o he esimaion resuls of he aggregae provincial producion funcion in Equaion (3). The resul is a se represening efficien resource allocaion, defined as opimal resource allocaion of inpus, X i, and opimal GDP, i. Then, we can solve a cenral planner s problem o obain he opimal inpu allocaions: max W = ( ), X i subec o i i Si i producion echnologies: F( ) provinces increased from 27 o 33; however, no reroacive adusmen of relevan daa has been carried - 2 -, (4) = (5) i X i i i i (6) Endowmens: X = X ( X 0 for all i) where W is a social welfare funcion of he Cobb Douglas form wih he acual provincial oupu shares S i used as weighs. In endowmens, inpu variables wihou he subscrip i indicae he corresponding naional values as well. II.2 Daa This sudy employs daa on 26 provincial GDP and facor inpus for he period As a resul of poliical reforms in Indonesia afer he 1998 economic crisis, 7 new provinces were carved ou from he exising ones and he province of Eas Timor was graned independence. Thus, he number of

3 ou so far. In order o avoid inconsisency, we use he daa for 26 provinces and aggregae he saisics for he new and exising provinces. The sources are summarized as follows. GDP: The daa are sourced from Gross Regional Domesic Produc of Provinces in Indonesia by Expendiure (BPS, various years a) and all figures are convered ino he 2000 consan price. Employmen: The daa are sourced from Labor Force Siuaion in Indonesia (BPS, various years b). Capial: Daa on capial sock have no been officially published in Indonesia; herefore, he provincial capial daa are employed from Kaaoka (2010), which esimaed on he basis of he perpeual invenory mehod. The daa are consruced by accumulaing each year s invesmen, obained from he Gross Regional Domesic Produc of Provinces in Indonesia by Expendiure, and subracing he reiremen values of he pas invesmen. III. Empirical Resuls III. 1 Province-level Regional Producion Funcion In order o avoid a heeroskedasiciy problem due o large regional differences, eiher regional dummy variables in he resource-rich provinces or regional fixed effecs were employed. The five resource-rich provinces are Aceh, Norh Sumara, Riau, Eas Kalimanan, and Papua. Addiionally, considering he impac of he financial crisis on he provincial economies in Indonesia, a dummy variable ha akes a value of 1 in he pos-crisis period and 0 a oher imes is also employed. Table 1 Provincial Producion Funcion Esimaes R1 R2 R3 R4 Consan (-10.29) (-20.08) (-21.09) (-0.29) Cpial (47.05) (50.19) (74.5) (22.62) Labor (6.79) (12.1) (15.37) (-1.08) Time Trend (-1.28) (4.86) (9.82) Capial* (-2.49) (-2.14) * Labor* (2.75) (4.11) Regional Dummy (10.97) (10.96) (10.83) Pos-Crisis Dummy (-7.87) (-8.23) (-7.95) (-14.36) Provincial Fixed Effec yes R Noe 1: Figures in parenhesis are -values. Noe 2: * and indicae ha esimaes are a he 5% and 1 % significance levels, respecively. Noe 3: Fixed-effec coefficiens are no repored. Shown a Table 1, R3 is employed as producion echnologies of maximizing problem because all coefficiens are saisically significan and heir signs are economically meaningful. Capial played an imporan role in Indonesia s provincial producion wih elasiciies and ha of labor inpu is far smaller han ha of capial a Srong and posiive coefficiens for he ime-rend variables - 3 -

4 implies ha echnical change played a vial role in promoing Indonesia s provincial producion during he sudy period. The coefficien of he regional dummy indicaes a posiive and srong value, implying ha resource-rich provinces have much greaer oupu han oher provinces. The coefficien of he pos-crisis dummy shows a negaive and srong value, implying ha producion values decreased significanly in he year 1998 and afer. III. 2 Pareo-opimal Inerregional Allocaion of Facor Inpus We calculae he Pareo-opimal inerregional facor inpus in year. Tables 2 and 3 presen he bigges and he smalles gap beween he naional share of acual and opimal values of inpu allocaions for each province, wih he year. The posiive (negaive) value indicaes more (less) allocaions han he opimal. Several ineresing findings are summarized as follows. Table 2 shows ha, apparenly, here exiss a large surplus of capial in he province of Jakara. The acual provincial capial shares for Jakara ranged from 25.5% in 1986 o 27.3% in This indicaes ha Jakara, which, as he capial ciy, has of a number of capial-inensive indusries, faces an overconcenraion of economic aciviy. The resource-rich off-java provinces show differen disposiions. Riau province, he booming special economic region, shows a higher-han-opimal rae of capial formaion, whereas wo provinces, Aceh and Norh Sumara indicae lower-han-opimal raes. Table 2 Gap beween acual and opimal allocaion by province Capial Gap (%) ear Gap (%) ear Gap (%) ear Gap (%) ear Sumara Kalimanan 01. Aceh Wes Kalimanan Norh Sumara Cenral Kalimanan Riau Eas Kalimanan Wes Sumara Souh Kalimanan Jambi Sulawesi 06. Bengkulu Norh Sulawesi Souh Sumara Cenral Sulawesi Lampung Souh Sulawesi Java-Bali 22. Souheas Sulawesi Wes Java Easern Indoneisa 10. Jakara Wes Nusa Tenggara Cenral Java Eas Nusa Tenggara ogyakara Maluku Eas Java Papua Bali Table 3 shows ha he acual labor allocaion in Jakara is far less han wha i should be. The reverse is rue of Wes Java, he adacen province of Jakara. Considering ha some pars of Wes Java is wihin commuing disance of Jakara, he province has a sizable residenial populaion working in Jakara. In Ache and Eas Kalimanan, he acual labor allocaion is far less han he opimal levels because hese provincial economies specialize in non-labor-inensive mining secors. On he conrary, he hree large Java provinces, Wes, Cenral, and Eas Java, show far more acual - 4 -

5 allocaion of labor inpu han hey should as hese economies specialize in he labor-inensive manufacuring secor. Table 3 Gap beween acual and opimal allocaion by province Labor Gap (%) ear Gap (%) ear Sumara Kalimanan 01. Aceh Wes Kalimanan Norh Sumara Cenral Kalimanan Riau Eas Kalimanan Wes Sumara Souh Kalimanan Jambi Sulawesi 06. Bengkulu Norh Sulawesi Souh Sumara Cenral Sulawesi Lampung Souh Sulawesi Java-Bali 22. Souheas Sulawesi Wes Java Easern Indoneisa 10. Jakara Wes Nusa Tenggara Cenral Java Eas Nusa Tenggara ogyakara Maluku Eas Java Papua Bali III. 3 Efficiency Growh Given he previous esimaion and calculaion resuls, he hree efficiency indices as well as heir growh raes are compued and shown a Table 4. The maor ineresing observaions are summarized as follows. Table 4 Efficiency Indexes and Growh Raes Efficiency Uilizaion Allocaion Value Grow Value Grow Value Grow h (%) h (%) h (%) The efficiency index ranges from o over he observaion period. The reciprocal of he efficiency index indicaes naional welfare growh prospecs; he prospecs of welfare growh are relaively greaer a a poenial growh rae of 4.2% o 13.4%. The efficiency index has grown a an arihmeic average rae of 0.33%, annually. The growh raes in he uilizaion efficiency and he allocaion efficiency indices were 0.20% and 0.13%, Gap (%) ear Gap (%) ear

6 respecively, and heir conribuion o efficiency growh accouned for 60.8% and 39.1%, respecively. These resuls imply ha beer resource uilizaion conribued more o naional economic growh in Indonesia han did resource allocaion. Wih regard o annual variaions, he allocaion efficiency index consanly rose from 1986 o 1997, bu he growh slowed down aferwards. This fac implies a srucural change in inerregional allocaion of facor inpus beween he pre- and pos-crisis periods. In he pre-crisis period, labor and capial moved o more profiable provinces, which implies a pro-efficiency inerprovincial allocaion. The pos-crisis period was no characerized by pro-equiy inerprovincial allocaion. IV. Conclusions Given he esimaion resuls of province-level producion funcions and compuaions of opimal resource allocaion, his sudy examined he efficiency in inerprovincial resource allocaion. A srucural shif can be found from a pro-efficiency allocaion before he economic crisis o a nonefficiency allocaion afer he crisis. The overconcenraion of economic aciviy in Jakara did no improve he efficiency in he inerregional resource allocaion. There are several he scope for improvemens in his sudy. Firs, he panel-daa esimaion echniques for he province-level producion funcions can be improved. In order o examine he srucural change during he economic crisis, his sudy employed pos-crisis dummy variables. Several oher economeric echniques such as CUSUM es can be an alernaive applicaion. In his model, he pos-crisis dummy variables were he same across provinces. However, Akia and Alisahbana (2002) found ha he impac of he economic crisis differed across regions and ha he effecs were more severe in he Java provinces. Their empirical findings should be analyzed by oher economeric echniques in he fuure. Second, he welfare-maximizing resource allocaion model can be anoher improvemen. The model enails he applicaion of he Cobb Douglass producion funcion and weighs is oupu by acual oupu values; however, here are no consrains in erms of inerprovincial mobiliy of facor inpus. If relocaion coss are assumed in he analysis, for plan and equipmen and in regard o he social ies in he residenial communiy, he resuls would be more relevan. References Akia, T., and A. Alisahbana, 2002, Regional Income Inequaliy in Indonesia and he Iniial Impac of he Economic Crisis, Bullein of Indonesian Economic Sudies, 38(2), pp Badan Pusa Saisik (BPS, Cenral Bureau of Saisics), various years a, Gross Regional Domesic Produc of Provinces in Indonesia by Expendiure, Jakara., various years b, Labor Force Siuaion in Indonesia, Jakara. Kaaoka, M., 2010, Provincial capial sock in Indonesia, , The 10h Inernaional Conference of Indonesian Regional Science Associaion, Surabaya, July 29, Acknowledgmen This sudy is suppored by Gran-in-Aid for Scienific Research C ( ) from Japan Sociey of he Promoion of Science