Regional Income Disparities, Distributional Convergence, and Spatial Effects:District-Level Evidence from Indonesia 2000-2017

November 21, 2019

By: Carlos Mendez, Anang Budi Gunawan, and Felipe Santos-Marquez.


Using a novel dataset, this paper studies the spatio-temporal dynamics of income per capita across provinces and districts in Indonesia over the 2000-2017 period. First, an exploratory spatial analysis suggests that spatial autocorrelation is only significant at the district level and it appears to be robust from 2013 to 2017. Thus, at the district level, we proceed to use a spatial filtering model for decomposing income into a spatially independent component and a spatial residual. Next, through the lens of a distributional convergence framework, we find that the non-filtered income is characterized by a lack of regional mobility. In contrast, the spatially independent component shows a stronger pattern of polarization. We conclude arguing that neighbor effects played a role in reducing polarization in Indonesia.