PRODUCTIVITY AS DETERMINANT FACTOR OF INCOME DISPARITY IN INDONESIA

Abstract

This paper investigates the determinants of income disparities among regions in Indonesia. An approach used to analyze the causes of this disparity is to break down the determinants of the regional productivity. These factors are the significant role of agriculture to the regions, the role of the mining sector to the regional economy, the level of education, and the mastery of technology, especially information and communication. This study uses panel data analysis to determine the effect of these factors on per capita income. The estimation results show that the higher the regional dependence on the agricultural sector, the lower the income per capita because agriculture is considered as a sector with low productivity. On the other hand, the higher the role of mining in the economy, the greater the income per capita because the productivity of this sector is quite high. Meanwhile, the level of education and technological mastery, as productivity drivers, significantly increase per capita income. Thus, the variation in the productivity of each region is indeed a determinant of income disparities among regions.