An exploration of interaction effects in Indonesian regional economic development

This dissertation presents four studies covering different areas of Indonesian regional analysis with special attention to the interregional interaction. The first study examines the determinants of the lay-off process that took place during the Indonesian economic crisis among Java districts. It shows that the ratio of lay-offs to the labor force is negatively related to the economic growth rate and share of labor in the informal sector; and is positively related to the unemployment rate. The significance of spatial effects is confirmed, suggesting the existence of interregional spillover effect and some degree of integration in the district-level lay-off process.; The second study seeks the determinants of output multipliers and tries to identify economic variables that may affect the magnitude of the multipliers. Applied to the 1995 Indonesian interregional input-output table, spatial dependence models are fitted to find parameter estimates of the model that connects output multipliers and variables derived from exogenous accounts in input-output framework. This study confirms the importance of considering spatial effects in seeking the determinants of output multipliers, the significance of the primary input structure as determinants of the output multiplier, and the importance of the propensity to spend locally for the regional economy.; The third essay develops two exploratory methodologies for an hierarchically-structured regions. The first is the hierarchical Dendrinos-Sonis, used to analyze the competition-complementarity patterns of regional development. The application examines whether the economic growth in one region brings in favorable impacts to that in others. The second is the spatial shift-share that extends the standard shift-share decomposition. It evaluates a region's growth in terms of its neighbor's, rather than in terms of that of the nation. The application analyzes the spatial growth inequality.; The fourth essay measures the economic importance of Indonesian provinces by applying the extraction method within an interregional input-output analysis. The method hypothetically extracts a particular province, and analyzes output differences between the full-region and the hypothetical systems. Greater output differences correspond to a greater importance of that particular province in the interregional system. Further, the study shows that extraction impacts are positively correlated with the notion of interregional similarities.