This study evaluates the regional convergence hypothesis at the provincial level during the recent deindustrialization period 2001–2017 of Indonesia.
Using a novel dataset, we analysis the spatio-temporal dynamics of income per capita across 34 provinces and 514 districts in Indonesia over the 2010–2017 period.
By applying a non-linear dynamic factor model, this article tests the club convergence hypothesis using a novel dataset of income at the district level. The results show significant five convergence clubs.
Except for aggregate efficiency, we reject the hypothesis that all provinces would eventually converge to a common steady-state path in terms of labor productivity, physical capital, and human capital. Low efficiency is still a problem for Indonesia
Results from the distributional convergence approach indicate the existence of two local convergence clusters within the overall and pure efficiency distributions.