Reducing Regional Disparity in Java: A Spatial Econometrics Approach

Abstract

Regional disparity is one of the challenges faced by the government of developing Indonesia. Indonesian government focus on increasing equitable development by increasing physical and nonphysical connectivity through the National Medium-Term Development Plan III (RPJMN III) in 2015- 2019. However, the allocation of capital or investment between regions can trigger or reduce regional disparity. This study aims to determine the role of technology, transportation infrastructure, and investment spatially in reducing regional disparity in Java. The study utilizing data of 6 provinces in Java Island in 2015 – 2019. The method used in this study was spatial econometric analysis. The spatial model used is Moran’s I, Lagrange Multiplier Test, and Spatial Error Model (SEM) using Geoda 1.20 software. The results of Moran’s I showed that there is a negative spatial dependence on regional disparity with a Moran index of -0.021. Based on the result of LM Test, the spatial model used is SEM. The estimation results of SEM model showed that technology has spatially a negative and significant impact on regional disparity in Java, while transportation infrastructure and investment has spatially a positive and significant effect on regional disparity in Java.