Don’t Put All Eggs in One Basket: Subnational Resource Curse and The Need for Economic Diversification in Indonesia 2003-2016

Berly Martawardaya & M. Fadli Hanafi | 16/04/2020 | Halaman telah dikunjungi 938 kali

The resource curse is a concept that has been studied numerously at national level but still very few at sub-national level. We conducted a study on Indonesia that has provinces with varying level of natural resources endowment. We created four quadrants to categorize Indonesia provinces and analyzed the relation between economic diversification and development outcomes. We calculated diversification using Herfindahl Hirsch Index (HHI) for period of 2003 to 2016 and differentiate between provinces with dependency on oil and gas as well as wider category of mining sector.

The former experienced higher inequality by 0.103%, and higher poverty by 0.03% while the latter category is correlated with slower growth by 0.511%. but experienced higher human deployment index (HDI) abut lower Gini Ratio) by respectively 0.033% and 0.038%. Nevertheless, dependency on mining sector is correlated with lower poverty of 0.142%. The study concluded with recommendations to diversify the economy and optimized the impact of provincial budget.

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