Social and Economic Convergence Across Districts in Indonesia: A Spatial Econometric Approach

This paper evaluates social and economic convergence across 514 districts in Indonesia during 2010-18. By applying spatial panel data methods, this paper reexamines the regional convergence hypothesis using a novel set of data on the human development index (HDI) and GDP per capita. These two indicators are used as proxies for social and economic progress, respectively. Results show a significant neighbourhood effect on the convergence process for both indicators. Specifically, a district's HDI and GDP tend to increase faster if its neighbours' HDI and GDP are high. A spatial Durbin model further indicates that the convergence speed of HDI is slightly faster than that of GDP per capita. These results are robust to two spatial connective structures: a contiguity-based Thiessen polygon and an inverse distance matrix. Among the determinants of social convergence, the share of industry and share of services sector produce statistically significant effects. In contrast, only initial economic size produces a significant effect on economic convergence.