A NEOCLASSICAL MODEL OF REGIONAL GROWTH IN INDONESIA |
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| Authors: | Frank Giarratani Soeroso |
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| Institution: | Associate Professor of Economics, University of Pittsburgh;and Director General of Domestic Monetary Affairs, Jakarta, Indonesia, respectively. |
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| Abstract: | In this paper a neoclassical model of regional growth is specified, estimated, and applied to the provinces of Indonesia. While parametric estimates indicate that factors of production respond as expected to neoclassical incentives, the attractiveness of growing regions for capital and labor inputs leads to instability and divergence among regions when the model is solved dynamically. A simulation of government intervention via a policy of encouraging capital growth in lagging regions demonstrates the potential of reversing such effects and encouraging regional convergence. |
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