Convergence and Economic Growth in the district in East Java : Spatial Econometric Approach

Abstract

Sustainable development is the goal of a country and human capital is one of the important factors for achieving sustainable economic growth. East Java as one of the major provinces with high economic growth was central to the eastern region of Indonesia that has a fairly high economic significance, which contributed 14. 71 % to the national Gross Domestic Product. This study aims to analyze the main factors forming regional economic growth and convergence in a District in East Java 2004- 2012 by considering spatial aspects. Analysis of convergence is conducted by using the sigma convergence and beta convergence. Dynamic panel model is used in this study in which the value of lag of the dependent variable becomes part of the model.The method of analysis in this study uses spatial econometric analysis tools least squar panels, as well asthe system Generalized Method of Moment (SYS-GMM). Analysis of the spatial econometrics in this study uses thesystemGMM due to the emergence of endogeneity problems in the growth model and in particular on the dynamic panel model.Human capital which consists of education (the average length of school) and health (life expectancy) becomes one of the main factors affecting economic growth.In addition. the spillover effects are shown from the interaction between regions so that the mobilization of production factors occured. Research results with sigma convergence has been converging in the district in East Java.Non-spatial approach in the form of absolute and conditional beta convergence and spatial approach withsystemGMM prove that there is no convergence in the District in East Java.Spil lover effect of the determining factors of economic growth, especially human capital to economic growth in East Java is not shown to occur.The existence of abundancefactor that occur in a spatial model of this study is proved exist in the population abundance variables.