Indonesia is a country with a notable economic inequality both across its provinces and districts. This inequality can be attributed to the disparities in access to development. In this paper, the effects of regional competitiveness and economic reforms on economic growth is studied. Regional competitiveness factors include infrastructure pillar, health and education pillar, and labor market efficiency pillar. The data come from the Indonesia Database for Policy and Economic Research (INDO-DAPOER) of the World Bank for the year 2010. The results of the study show that the percentage of households with electricity, the percentage of births attended by skilled health worker, the net enrollment ratio for primary education, the number of people employed, and the total grants statistically and significantly influence regional economic growth positively. Indonesia is to reduce inequality in regional competitiveness and improve the total grants distribution in order to promote regional economic growth equality in the country.
TopIntroduction
The rapid changes in world economic setting toward trade and capital market liberalization have pushed national governments to take actions in order to participate and survive in global markets as well as to improve macroeconomic performance and to enhance people’s welfare. Competitiveness development and economic reforms are among these actions. For example, in 1959, Spain stimulated the Liberalization and Stabilization Plan economic reforms to improve its growth performance (De La Escosura et al., 2011). Meanwhile, China began basically successful economic reforms toward a market-oriented economy in 1978 (Chow, 2004). Further, India initiated a number of liberalizing measures in 1991 (Klein & Palanivel, 2000) and Bangladesh introduced wide-ranging economic reforms since the early 1990s that had contributed to its improved economic performance (Mahmud et al. 2008).
In term of competitiveness, it is defined through a multidiscipline economic theory approach in economic geography and regional economy field. Many studies on competitiveness have been written by Michael Porter (1990, 1995) and Paul Krugman (1994, 1996). Further, some papers on competitiveness were written by other authors. A regional competitiveness is closely related to economic geography and regional economy. Michael Porter has emphasized the importance of geographical location. In his model, called “diamond”, Porter emphasized geographical concentration of business that enables productivity, innovation, and export. After his theory, some authors conducted empirical research to identify problems that resulted on economic and geographical interconnection. Geographical interconnection can be implemented in accelerating economic development in Indonesia since Indonesia is a country with the largest number of islands in the world.
According to Global Competitiveness Report (2014-2015) decision makers, business people, and population increasingly are required to know that economic growth has to be balanced by providing opportunity and benefit for all population segments and environmental safety (Schwab & Sala-i-Martín, 2014). It can be achieved through competitiveness development, that measured by the Global Competitiveness Index with three sub-indices and 12 pillars: (i) basic requirements, (ii) efficiency enhancers, and (iii) innovation and sophistication factors. Basic requirements include four pillars: (i) institutions, (ii) infrastructure, (iii) macroeconomic environment, and (iv) health and primary education. Efficiency enhancers consist of six pillars: (i) higher education and training, (ii) goods market efficiency, (iii) labor market efficiency, (iv) financial market development, (v) technological readiness, and (v) market size. Innovation and sophistication factors have two pillars: (i) business sophistication and (ii) innovation.