Regional Efficiency Convergence and Efficiency Clusters: Evidence from the provinces of Indonesia 1990–2010

Abstract

Improving production efficiency at the regional level is often considered a means to reduce regional inequality. This article studies regional efficiency convergence across provinces in Indonesia over the 1990–2010 period. Through the lens of both classical and distributional convergence frameworks, the dispersion dynamics of the following three indicators are contrasted: overall efficiency, pure efficiency, and scale efficiency. Results from the classical convergence approach suggest that—on average—there is regional convergence in all these three efficiency measures. However, results from the distributional convergence approach indicate the existence of two local convergence clusters within the overall and pure efficiency distributions. Moreover, since scale efficiency is characterized by only one convergence cluster, the two clusters of pure efficiency appear to be driving the overall regional efficiency dynamics in Indonesia. The article concludes highlighting the importance of monitoring and evaluating heterogeneous (beyond average) behaviour, multiple convergence clusters, and geographic proximity when formulating regional policies that aim to reduce regional inequality.

Carlos Mendez

Associate Professor of Development Economics

My research interests focus on the integration of development economics, spatial data science, and econometrics to understand and inform the process of sustainable development across regions.