Estaciones y datos

Indonesia, with more than 17,000 islands, is the world’s largest archipelago country. The vast number of islands were formerly divided into 26 administrative regions (provinces). Later, based on the Regions Decentralization Act in 1999 several regions had been split into new provinces; in 2012 Indonesia consists of 34 provinces as shown in figure 10.1

Table 16 shows the selected islands and provinces’ indicators of Indonesian provinces grouped by the country’s six main islands: (1)Java, (2)Sumatra, (3)Kalimantan, (4)Sulawesi, (5)Nusa Bali and (6)Papua. This table summarizes the different levels of economic development, population distribution and land area across regions in Indonesia.

The island of Java in which the capital region, Jakarta, resides, is the center of political ac- tivity and economic development in Indonesia. It is the largest regional economy in the country, representing 61.39 percent of the total gross domestic product (GDP). Being the largest regional economy, the residents of Java enjoy the highest quarterly GDP per capita at 15,458.11 thousand Rupiah. In addition, Java is also the most populous island as it is the home of almost 60 percent of Indonesian, although accounting for only 6 percent of the country’s land area.

Java includes four other provinces besides the capital region: West Java, East Java, Central Java and Yogyakarta. Due to their close proximities to the capital, these provinces gain advantages in access to the country’s major economic infrastructures including road, housing, school, harbor, and highway. In addition, large concentration of trade, financial, and manufacturing companies are built and operated in Java. These factors contributed to transforming the provinces in Java which formerly relied on trade of agricultural products into manufacturing, industrial and financial

1_{In order to maintain data consistency, we analyze the data based on the 26 provinces by merging the data of new}

regions.

Located northwest to Java, the island of Sumatra is the second largest regional economy in the country accounting for 20.93 percent of total GDP, with quarterly GDP per capita of 9,179.21 thousand Rupiah. Representing 24.08 percent of the total land area, Sumatra is divided into eight provinces: North Sumatra, South Sumatra, Lampung, Riau, West Sumatra, Aceh, Jambi, and Bengkulu. The revenue of these provinces are mainly derived from export of agriculture products including coffee, palm oil, tea, and sugarcane. The island is also among the largest Indonesia’s producer of oil, coal, tin, gold, and silver.

The island of Kalimantan refers to the part of the island of Borneo that belongs to Indonesia. The northern part of the island of Borneo is the sovereign territory of Malaysia and Brunei. Kali- mantan is the second largest island in Indonesia accounting for 27.08 percent of the country’s land area. This island consists of 4 provinces: East Kalimantan, West Kalimantan, South Kalimantan, and Central Kalimantan. More than 75 percent of this region are forest areas, thus forestry-related products such as timber and processed wood are the mainstay of the Kalimantan’s economy. In addition, oil, gas, rubber, and fishery are also the main contributors to the region’s economy. This island’s economy represents 8.33 percent of the total GDP, with GDP per capita at 14,366.99 thou- sand Rupiah per quarter. The province of East Kalimantan largely contribute to the high average GDP per capita; East Kalimantan quarterly GDP per capita (31,383.69 thousand Rupiah) is the sec- ond largest in the country below only the capital region (Jakarta’s is 45,565.70 thousand Rupiah per quarter).

The island of Sulawesi, located in the east of Kalimantan, consists of four provinces: West Sulawesi, South Sulawesi, Central Sulawesi, and Southeast Sulawesi. The size of this island is 10.45 percent of the total land area and is inhabited by 7.32 percent of the total population. The economy of Sulawesi represents 5 percent of the country’s total GDP, with GDP per capita of 7,085.07 thousand Rupiah per quarter. The main products of Sulawesi includes coconuts, nutmeg, soy, coffee, and rice; the agricultural sector contributes to approximately 34 percent of Sulawesi’s economy. In addition, fishery, commercial timber, and tourism are important contributors to the island’s GDP.

Nusa Bali consists of Bali, West Nusa Tenggara and East Nusa Tenggara which are small island provinces located east of Java. These provinces have the lowest average quarterly GDP per capita (5,046.75 thousand Rupiah) and represent only 2.67 percent of the country’s total GDP. Agriculture is the dominant sector in generating revenue for West Nusa Tenggara and East Nusa Tenggara, whereas for Bali, tourism (trade and services sector) contributes to approximately 50 percent of the economy.

Papua is the largest island in Indonesia; the size of Papua island represents 27.59 percent of the country’s land mass. Despite its large area, the island is only inhabited by (approximately) 6 million, people which represents less than 3 percent of the total population. The island’s economy accounts for 1.79 percent of the total GDP and its average GDP per capita is 5,984.57 thousand Ru- piah per quarter. This island consists of two provinces: Papua and Maluku. The island Papua is at the most easterly part of the country and is the largest island in Indonesia. Mining is the main con- tributor to the province of Papua’s GDP; the Grasberg Mine, the largest gold mine and third largest copper mine in the world, is located in this province. Along with agriculture and manufacturing, mining sector contribute to approximately 60 percent of this province’s GDP. Maluku derives its income mainly from agriculture, forestry and fisheries. These sectors account for approximately 25 percent of the Maluku’s GDP.

The statistics presented in table 16 imply large differences in term of the size of economy across regions in Indonesia. The two largest islands’ GDP, Java and Sumatra, account for 82.32 percent of total GDP; the share of Java’s GDP is approximately three times larger than Sumatra (refer to figure 11a). The inequalities have widened over time as for many years the economic development in Indonesia has been centered only in Java; measured by the size of GDP. Income per capita of islands located farther away from Java show lower levels of economic development.

Figure 11b plots three observations of the frequency distribution of the GDP per capita across provinces over the last twenty years. Each curve represents the distribution of GDP per capita at a certain year around its mean. The curve in the beginning of the sample (1993Q2) suggests large inequalities across provinces as it is heavily right skewed: the majority of the Indonesian provinces have GDP per capita within one standard deviation below the mean, while a small number of them

fall well above the mean. In order to depict how the inequalities across regions shifted over time, we plot the three GDP distributions on one graph by normalizing around the mean of each year’s observation. Figure 11b demonstrates additional evidence of the large differences in GDP per capita across regions in Indonesia. However, we find that the inequalities have reduced over time. In the fourth quarter of 2012, the distribution is less skewed than in previous periods as more provinces’ GDP per capita are located closer to the mean.

Regions in Indonesia are also characterized with large differences in term of economic struc- ture; industrial composition differs widely across islands in Indonesia (refer to table 17). Agricul- tural sector is the largest contributor to the region’s economy except Java. In Java, manufacturing, which is consider as an interest-sensitive sector, has the largest contribution to the economy, rep- resenting 25.88 percent of total regional GDP. The share of manufacturing to regional GDP varies widely in other islands. For example, the manufacturing sector in Kalimantan accounts for 20.13 percent, but only 5.1 percent of Nusa Bali’s regional GDP. The share of construction, which also considered to be an interest-sensitive sector, also varies across islands. It ranges from a low of 5.21 percent in Sumatra to a high of 8.79 percent in Sulawesi. This table also shows large variation in the share of mining sector, represented 23.37 percent of regional GDP in Papua, but only 1.46 per- cent of Java’s regional GDP. The shares of all other sectors including trade, electricity, transport, finance and services are also varied across regions, but to a lesser magnitude than manufacturing and mining.

In addition to differences in industrial composition, the proportion of large and small firms also varies across regions. Table 18 shows that the share of small firms’ output to regional GDP ranges from a low of 11.72 percent in Kalimantan to a high of 59.20 percent in Nusa Bali. Java, the largest regional economy, has 29.29 percent of their total GDP produced by small firms. Regions with large share of mining sector: Sumatra, Kalimantan, and Papua, have relatively small proportion of output represented by small firms; small firms’ output represent 16.06 and 11.72 percent of regional GDP in Sumatra and Kalimantan, respectively, while accounted for 16.06 percent of GDP in Papua.