Economic Growth and Income Disparity between Regencies/Cities in West Java Province

Transcription

1 EKO-REGIONAL, Vol. 12, No. 2, September 2017, pp Economic Growth and Income Disparity between Regencies/Cities in West Java Province By: Sri Lestari 1), Ratna Setyawati Gunawan 2) 1,2) Faculty of Economics and Business, Universitas Jenderal Soedirman 2) ABSTRACT The aim of this research is to find out the correlation between economic growth and inter regency income disparity in West Java Province year 2005 to This research is analysis of secondary data, using GDRP Based on constant price 2010, economic growth, and total population year 2005 to Data obtional from SCA of West Java Province and also the Local Goverment. Analysis model used is Williamson Index, Entropi Theil Index Calculation, Product Moment Colerration Analysis by Pearson, and Trend analysis. Based on Calculation of Williamson Index and Entropi Theil Index inter regency income disparity in West Java Province considered in high disparity with the average of Williamson index by and Entropi Theil Index by Based on Trand analysis disparity income show increasing trand. The Kuznets Hypothesis (U-inverted curve) proved to be not applicable in West Java Province during 2005 to 2014, and it shows that inequality is getting worse. Keywords: Income Disparity, Economic Growth, Kuznets Hypothesis. INTRODUCTION The main objective of economic development is not only to create the highest growth, but also to reduce poverty, income inequality and unemployment. Job opportunities for residents or the community will provide income for the needs of life (Kuncoro, 2004). Very large economic growth rates of economic activity are higher than what happened in the previous year. Economic growth is the output of per capita in the long run, the process gets income because it contains dynamic elements. Theorists of economics state that economic growth can not only be measured by Gross Domestic Product (GDP) and Gross Regional Domestic Product (GRDP), but also immaterial weighting such as pleasure, satisfaction, and happiness with a sense of security, as well as peace that is felt by the wider community (Arsyad, 2004). Regional economic development is an activity carried out by the government and society within the scope of existing resources and various forms of partnership patterns between the government and the private sector to convert new field activities or activities of economic activity (economic growth) within the region (Arsyad, 2004). The success of various economic fields, economic structures, and the smaller income between residents, between regions, and between sectors. Development in an area is not always uniform, some regions can achieve high growth, while some other regions experience slow growth. Economic growth is not necessarily achieved by all regions. Klassen divides the regions into four classifications based on economic growth and per capita income, namely areas of rapid growth and high income, advanced but depressed regions (high income but low growth), fast growing regions (high growth but low income), and underdeveloped areas (low growth and low income) (Kuncoro, 2004) Regions that did not experience the same progress were caused by a lack of resources; the tendency of capital owners (investors) to prefer urban areas or areas that have facilities such as transportation infrastructure, electricity networks, telecommunications networks, banking, insurance, and also skilled labor (Kuncoro, 2004). 46

2 Economic Growth and.. (Lestari et al.) West Java is one of the provinces that has the advantage and strategic role both in terms of geography and economic side, in terms of geographical West Java Province bordering the Special Capital Region of Jakarta as the center of growth, the center of government, and the national economy which is used as a market, financial center, capital and technology development. In terms of economics, West Java Province has the third largest GRDP compared to other provinces in Java, it can be seen in Table 1. Table 1. Gross Regional Domestic Product (GDP) on the Basis of Constant Prices According to Provinces on Java Island (Billion Rupiah) No. Province Year Average 1 Jakarta 1,147,558 1,222,527 1,297,195 1,374,348 1,260,470 2 West Java 965,622 1,028,409 1,297,195 1,148,948 1,059,141 3 Central Java 656, , , , ,195 4 Yogyakarta 680,490 71,702 75,637 79,557 73,736 5 East Java 1,054,401 1,124,464 1,192,841 1,262,700 1,158,602 Source: BPS, 2016 From Table 1, it can be seen the comparison of Gross Regional Domestic Product (GRDP) between provinces in Java Island shows the comparison of the GDP of West Java province during the period 2011 to 2014 from year to year has a large GDP value and occupies the third position after DKI Jakarta and East Java Provinces. The Gross Regional Domestic Product of West Java Province tends to increase over the past four years without any decline, this illustrates that in the West Java Province there has been a development process that can be seen in the level of economic growth. GRDP value cannot be used to describe the level of prosperity because each region has a very different population, thus even though the West Java Province's GRDP is greater than that of Central Java Province, this condition cannot be interpreted as the level of prosperity of the population of West Java Province higher than Central Java, then to measure the level of prosperity can use per capita GRDP which is the average income of an area's population, where if the greater the GRDP per capita then the level of welfare of the community is better and vice versa if the per capita GRDP is low then it means the smaller the welfare of the people. The following is Table 2 which shows the per capita GRDP growth rate based on the constant price of 2010 according to the province in Java Island in 2011 to Table 2. Growth Rate of Gross Regional Domestic Product (GRDP) Per Capita at Constant 2010 Prices According to Provinces in Java Island, (Percent) No. Province Year Average 1 Jakarta West Java Central Java Yogyakarta East Java Banten Indonesia , Source: BPS, 2016 From Table 2, it can be seen that in the last four years East Java, DKI Jakarta, West Java, Banten and Central Java provinces have a high average per capita GRDP growth rate in Java. Yogyakarta Special Province has the lowest growth among the other five provinces. West Java Province has a high growth rate in Java Island at 4.41 percent. Economic growth in West Java Province experienced 47

3 EKO-REGIONAL, Vol. 12, No. 2, September 2017, pp fluctuating growth from year to year. Based on the data in Table 2 which shows the rate of economic growth in 2011 of 4.78 percent, an increase in 2012 was 4.82 percent. In 2013 despite experiencing a decline but not so large to 4.70 percent, which was followed by a decline back in 2014 to 3.49 percent. West Java Province with a high average GRDP per capita growth rate still has problems, one of which is the creation of inequality which can be indicated by the Gini index value according to the provinces in Java. Following is the Gini index according to provinces in Java Island during 2011 to Table 3. Gini Ratio Province in Java Island No. Province Year Average 1 Jakarta West Java Central Java Yogyakarta East Java Banten Source: BPS, 2016 This index value ranges from 0 to 1. A value of 0 indicates that all income is divided equally for the entire community unit (perfect equality), while the value of 1 means that all income is only owned by one person or one unit in the overall income distribution (perfect inequality). The lowest inequality has this index value of 0.4 or below. High inequality if it has this index above 0.4 in its distribution (Todaro, 2000). From Table 3, this index of West Java Province from year to year experienced steady growth and was ranked third highest in Java by 0.41 after DKI Jakarta Province which had the highest Gini Index of 0.43 and DI Yogyakarta 0.42 percent. Judging from the high economic growth rate of West Java with a per capita GRDP growth rate of 4.41 percent and a high Gini index value of 0.41 indicating a high inequality in the province of West Java. When viewed in the regencies / cities in West Java Province, the per capita GRDP of Bekasi Regency has the highest per capita GRDP of Rp. 68,915,000, while Cianjur Regency is the district that has the lowest per capita GRDP of Rp. 12,831,000. Per capita Gross Regional Domestic Product of each Regency / City in West Java Province can be seen in Table 4 below. Per capita GRDP data in Table 4 shows that the level of welfare in West Java Province is uneven because there are only a few districts / cities that have high per capita GRDP, while other regions have a much lower per capita GRDP. West Java Province is directly adjacent to DKI Jakarta, which is the country's capital, DKI Jakarta Province is geographically located in the north of Java Island, this affects the rate of development and economic growth of regencies / cities directly adjacent to DKI Jakarta or the northern region of West Java Province. Relatively, districts / cities in the northern part of West Java Province are more advanced compared to districts / cities in the southern region of West Java. Districts / cities that have high welfare are located in the northern part of West Java, which are close to growth centers, including Bekasi Regency, Bandung City, and Karawang Regency. This is because the area is highly developed in the economy and is a district / city which is a place for the development of industries, a highly developed service sector and tourist attractions. From Table 4 also shows that there is still a considerable distance between the per capita GRDP of the Regency / City in West Java Province, this can be seen from the highest per capita GRDP in 2014 occupied by the City of Bekasi amounting to Rp72,844 million rupiah, GDP per the capita of Cianjur Regency is the lowest of only IDR 12,831 million. Differences in resources and infrastructure are indeed very influential in the area of West Java, but judging from the average provincial GDP per 48

4 Economic Growth and.. (Lestari et al.) capita of Rp. 30,110 million, this shows the unequal distribution of income between districts/cities in West Java Province. Table 4. Gross Regional Domestic Product (GRDP) per Capita of West Java Province by Regency/City in 2014 (Thousand Rupiah) No. Regency/City PDRB per Kapita 1 Bogor Regency 28,378 2 Sukabumi Regency 16,914 3 Cianjur Regency 12,831 4 Bandung Regency 21,992 5 Garut Regency 14,680 6 Tasikmalaya Regency 13,548 7 Ciamis Regency 17,671 8 Pangandaran Regency 19,011 9 Kuningan Regency 14, Cirebon Regency 15, Majalengka Regency 16, Sumedang Regency 19, Indramayu Regency 40, Subang Regency 17, Purwakarta Regency 49, Karawang Regency 68, Bekasi Regency 72, Bandung Barat Regency 19, Bogor City 28, Sukabumi City 25, Bandung City 69, Cirebon City 49, Bekasi City 24, Depok City 21, Cimahi City 35, Tasikmalaya City 20, Banjar City 16,680 Source: BPS, Gross Regional Domestic Product Regency/City of Indonesia, 2015 Simon Kuznets is the first economist to show a link between income inequality and per capita income while introducing ideas about the relationship between inequality and development. The Kuznets hypothesis states that income inequality initially arises together with economic development where in the initial stages of economic growth inequality deteriorates or enlarges and in later stages inequality decreases, but after reaching its maximum point then falls in the next stage of economic development. Therefore, the relationship between income inequality and average income is expressed as GDP per capita which has an inverse U curve. Based on the description above, the background of this research is that West Java Province has high economic growth in the third position in Java Island but also has a high Gini index value of 0.41 which indicates a high inequality, according to the criteria of index inequality. Arsyad, 2005). This illustrates that in West Java Province economic growth occurs but there is no equal distribution between districts/cities. This is what makes the writer interested in examining economic growth and inequality between districts/cities in West Java Province. 49

5 EKO-REGIONAL, Vol. 12, No. 2, September 2017, pp PROBLEM FORMULATION West Java Province has a high rate of economic growth and per capita income that continues to rise from year to year, but West Java has an index value of this with a high inequality of 0.41 indicating economic growth in West Java is not evenly shared by the entire community and the occurrence of inequality between districts/cities in West Java Province. Based on these problems, the following research questions are formulated: (1) How much income inequality between districts/cities occurred in West Java Province during ? (2) What is the trend of income inequality between districts/cities in West Java Province in ? (3) Is the Kuznets about U-inverted curves valid in West Java Province? LITERATURE REVIEW Economic Growth Economic growth can be defined as the development of activities in the economy which causes the goods and services produced in society to increase and the prosperity of the community to increase. So, economic growth measures the achievement of the development of an economy. The problem of economic growth is a long-term macroeconomic problem. From one period to another, the ability of a country to produce goods and services increases due to factors of production will always experience an increase in the number and quality. Investment will increase capital goods and the technology used also develops. In addition, labor increases as a result of the development of population development along with work experience and education, adding skills to the workforce. In macro analysis, the level of economic growth achieved by a country will be measured by the development of real national income achieved by a country (Sukirno, 2004). Economic growth is defined as an increase in GNP / GDP regardless of whether the increase is greater or smaller than population growth, or whether changes in economic structure occur or not. An economy is said to experience growth if the level of economic activity achieved is higher than the previous year. In other words, the new development occurs when the amount of goods and services physically produced by the economy increases from previous years (Arsyad, 2004). The process of economic growth is influenced by two kinds of factors, economic factors and non-economic factors. Economic growth of a country depends on its natural resources, human capital, technology, and other economic factors. In addition, economic growth is influenced by noneconomic factors such as culture, social conditions, political conditions, and other non-economic factors (Jinghan, 2013). Simon Kuznets defines economic growth as a long-term increase in the ability of a country to provide more and more types of economic goods to its population; this ability grows in accordance with the technological advances, the necessary institutional and ideological adjustments. This definition has three components: first, the economic growth of a nation is seen from the continuous increase in inventory; second, advanced technology is a factor in economic growth that determines the degree of ability in the provision of various goods to the population; third, widespread and efficient use of technology. According to Kuznets there are six characteristics of modern economic growth, namely: (1) Population Growth and Per Capita Products: The high rate of growth in per capita and pendulum products does not directly depict the high rate of increase in total products. (2) Increased Productivity: Economic growth can be seen from the increasing rate of per capita products, especially as a result of improvements in the quality of inputs that increase efficiency or productivity per unit of input. This can be seen from the increasing input of labor and capital sources or the increasing efficiency, or both. Increased efficiency means greater use of output for each input unit. According to Kuznets, the rate of increase in productivity can actually explain almost the overall per capita product growth in developed countries. 50

6 Economic Growth and.. (Lestari et al.) (3) High Rate of Structural Change: Structural changes in modern economic growth include the transition from agricultural activities to non-agriculture, from industry to services, changes in the scale of productive units, and the transition from individual companies to legal entities and changes in labor. (4) Urbanization: Modern economic growth is also marked by the increasing number of people in developed countries moving from rural areas to urban areas. Urbanization in general is a product of industrialization. The economies of scale that arise on a non-agrarian scale as a result of technological change have caused large-scale displacement of labor and population from rural to urban areas. (5) Flow of Goods, Capital, and Inter-Regional People: The improvement in the flow of goods, capital flows and people will support the realization of economic growth (Jinghan, 2013). Inequality Development inequality between regions is a common aspect in the economic activities of a region. Inequality that occurs between regions is caused by differences in natural resources owned and differences in demographic conditions found in each region, so that each region has different capabilities in driving the development process. This regional difference has led to the existence of developed regions (Developed Region) and underdeveloped regions. The occurrence of inequality between these regions has implications for the level of community welfare between regions. Therefore, this aspect of inequality between regions also has implications for regional development policy formulations carried out by the Regional Government (Sjafrizal, 2008). According to the Neo-Classical hypothesis, in the process of building inequality initially it will increase, this process will occur until the inequality reaches its peak. After reaching the cusp and the development process continues, the inequality will gradually decrease. Based on this hypothesis, a temporary conclusion can be drawn that in developing countries generally the development gap between regions tends to be high, while in developed countries the inequality will be lower. In other words, the development inequality curve between regions is a reverse U-shape Curve. Kuznets Hypothesis (Reverse U Curve) Simon Kuznets makes hypotheses about the inverted U curve, which suggests that when development starts, income distribution will be increasingly uneven, but after reaching a certain level of development the income distribution will be evenly distributed (Kuncoro, 2006). The evolution of gaps in the distribution of income was initially dominated by what Kuznets said. Thus between countries (cross section) and data from a number of surveys in each country (time series), Kuznets found a relationship between income gap and income level per capita in reverse. These results are interpreted as the evolution of income distribution in the transition process from a rural economy (rural) to an urban (urban) economy or industrialization. At the beginning of the development process, inequality in income distribution rose as a result of the process of urbanization and industrialization. At the end of the development process, inequality is decreasing when the industrial sector in urban areas has been able to absorb most of the labor coming from the countryside (the agricultural sector) or when the share of agriculture is smaller in production and income generation. Based on Lewis's theory of the movement of people from rural areas to the agricultural sector to urban areas with the industrial sector, rural areas that are densely populated lead to very low wages in the agricultural sector while urban wages are relatively high because the population or workforce is less and makes labor supply from the sector this is not limited, the process of transition of labor continues and in the last phase when most of the workforce coming from the agricultural sector is absorbed by the industrial sector the difference in per capita income between rural and urban areas becomes small or no longer exists (Tambunan, 2001). 51

7 EKO-REGIONAL, Vol. 12, No. 2, September 2017, pp Inequality Kuznets Curve Figure 1. Kuznets Curve Source: Kuncoro, 2004 Level PDRB per Capita Simon Kuznets in hypothesizing the existence of an inverted U curve that when development starts, income distribution will be increasingly uneven, but after reaching a certain level of development the income distribution will be evenly distributed. According to Kuznets, economic growth is the process of increasing the long-term production capacity of a country to provide economic goods to its population (Kuncoro, 2004). Simon Kuznet said that the initial stage of economic growth, income distribution tends to worsen, and the next stage of income distribution will improve, but at a time there will be an increase in disparity again and eventually decline again. This as illustrated in the Kuznet curve in Figure 1 shows that in the short term there is a positive correlation between the growth of per capita income and income disparity, but in the long run the relationship becomes a negative correlation. RESEARCH METHOD The research method used in this research is survey method. This research was conducted in the area of West Java Province, which consists of 18 districts namely: Bogor, Sukabumi, Cianjur, Bandung, Garut, Tasikmalaya, Ciamis, Pangandaran, Kuningan, Cirebon, Majalengka, Sumedang, Indramayu, Subang, Purwakarta, Karawang, Bekasi, and 9 cities: Bogor, Sukabumi, Bandung, Cirebon, Bekasi, Depok, Cimahi, Tasikmalaya, Banjar. The analytical tool used is the calculation of Williamson Index, Theil Entropy Index, moment product correlation analysis of Pearson, and trend analysis (Kuncoro, 2004). ANALYSIS Inequality of Income Distribution between Regencies/Cities in West Java Province To find out the size of the level of inequality between districts/cities in West Java Province used Williamson Index analysis and Theil Entropy Index. Calculation of the level of inequality was carried out during the 10 years period ( ) which included 18 districts and 9 cities. The calculation basis used is to use per capita GRDP in relation to the total population of each regency/city in West Java Province. Williamson Index criteria are between zero and one (0-1) if the Williamson Index number is smaller, then it shows that the inequality is getting smaller or in other words the more uneven. Likewise, if the Williamson Index is getting bigger or closer to one then it indicates a widening inequality or increasingly uneven income, while Theil's Entropy Index does not have an upper or lower limit, only if the greater the value, the more unbalanced and the smaller the value more evenly distributed. 52

8 Economic Growth and.. (Lestari et al.) The calculation results show the average Williamson Index in West Java Province during the period of 2005 to 2014 is known to be which means that the level of inequality between Regencies / Cities in West Java Province is included in the criteria of high inequality, because the average Williamson Index> 0, 5. It can be concluded that the difference in GDP per capita income between districts / cities is relatively high. Thus the hypothesis that states the level of inequality between districts / cities in West Java Province is included in high inequality can be accepted. The calculation results show the average Entropy Index in West Java Province during the period of 2005 to 2014 is known to be Theil's Entropy Index does not have an upper and lower limit, if the greater means to show more imbalance, the smaller the index, the lower the inequality or the more equitable. Based on the results of the Theil Entropy Index analysis in line with the Williamson Index, it means that the level of inequality between Regencies / Cities in West Java Province is relatively high, therefore it can be concluded that the hypothesis which states that the level of inequality between Regencies / Cities in West Java Province is included in high inequality criteria can be accepted. The decrease and increase in inequality that occurs between districts / cities is caused by the ability of each different region, different natural resources in each district / city, labor migration that is too centralized in urban areas, capital movements, the ever increasing population and local government policies in equity development. Analysis of the Trend of Income Inequality between Regencies/Cities in West Java Province in To find out the tendency of the level of per capita GRDP inequality between districts / cities in West Java Province, the linear quadrant trend was used the least. From the results of the calculation of the trend of inequality income distribution with the least squares method obtained the equation of the straight line Y = X for the Williamson Index and for Theil Y Entropy Index = X. From the trend equation, it can be seen that the income line inequality of Williamson Index and Theil Entropy Index in 2005 to 2014 shows a positive trend, indicating that income inequality has increased from year to year. A value in the Williamson Index trend is which means that in the initial year it is assumed that the income inequality value is positive and b value of illustrates that every one year there is an increase in income distribution inequality of The value of a in the Theil Entropy Trend Index is meaning that in the initial year it is assumed that the Theil Entropy Index inequality value is and the b value of illustrates that in each year there is an increase in income distribution inequality of Thus the hypothesis that states the level of income inequality between districts / cities in West Java Province shows high inequality and the trend of income inequality between districts / cities in West Java Province is increasing. DISCUSSION The Relationship between Economic Growth and the Level of Inequality To find out the relationship between economic growth and inequality of income distribution, Pearson's correlation analysis was used. It is said to be correlated if one variable changes followed by another variable changes. The results of Pearson's correlation calculation show that the correlation coefficient is and , so that it is included in the positive correlation and the correlation coefficient is low, this indicates that if economic growth rises it causes inequality to rise, on the contrary if growth falls then inequality also will go down. This is because there is a trade-off between economic growth and equity, where local governments tend to concentrate more on increasing growth, thus ignoring equity. Proof of Kuznets Hypothesis (Inverted U Curve) Hypothesis Simon Kuznets argues that in the early stages of economic growth, inequality tends to deteriorate and at the next stage inequality decreases, but at one time there will be an increase again and finally increase again and eventually decline again, so that it can be said that the event is 53

9 EKO-REGIONAL, Vol. 12, No. 2, September 2017, pp repeated. In this study at the initial stage of growth inequality is improving and in subsequent stages of inequality is increasing, but at a time there will be a decrease in inequality again and eventually will increase again, so that the event can be said as repetitive. This is contrary to the Kuznets hypothesis, so in this study Kuznets hypothesis does not apply. The tendency of increasing inequality shown by the Williamson Index and Theil Entropy Index shows the ineffectiveness of the Kuznets hypothesis in districts / cities in West Java Province. Although there is economic development that continues to increase positively but does not reduce the level of inequality in the community of West Java Province. CONCLUSION AND RECOMMENDATION Conclusion The conclusion that can be drawn from the research and discussion of economic growth and inequality between regencies/cities in the West Java Province for the period of 2005 to 2014 is as follows: (1) Inequality between districts/cities that occurred in West Java Province during 2005 to 2014 included in the criteria of high inequality seen from the results of the average Williamson index calculation and Theil Entropy Index (2) Trend of income inequality between districts/cities in West Java Province during the period of 2005 to 2014 has a positive and increasing trend. (3) The Kuznets hypothesis (inverted U curve) did not apply in the Province of West Java during 2005 to 2014 and it actually shows a higher inequality. Recommendation Based on the conclusions, the recommendations that can be submitted in this study are as follows: (1) In reducing the high level of inequality it is expected that the concentration of economic activities in the West Java Province is not concentrated in regencies / cities in developed regions, policies that can be taken by the local government can be done, namely in development planning to be directed or prioritized for the region - areas that are relatively left behind by not forgetting other areas. Improvement of transportation and communication facilities in disadvantaged districts can increase economic activity. (2) It is expected that the West Java Provincial Government can create equitable development in the lagging districts / cities so that the trend of inequality can decrease by improving infrastructure so that the local economy can develop, expanding access to capital and employment opportunities to encourage an increase in the real sector such as providing loan capital for Micro Enterprises, Small, and Medium-sized Enterprises (MSMEs) and coupled with improving the quality of human resources by building new schools in disadvantaged districts. (3) To further encourage economic growth and increase income equity, it is necessary to implement policies of local governments that can implement new growth centers other than the city center, so that they can spur economic growth in other regions affected by the new centers of economic growth. The West Java Provincial Government is more concerned with the potential of each district / city, of course different from each other, the potential that has been optimal must be developed again, so as to create superior regional products in hopes of improving the quality of human resources. REFERENCE Arsyad, L. (2004). Development economics (second edition, first print). Yogyakarta: STIE YKPN.. (2005). Introduction to regional economic planning and development (first Edition). Yogyakarta: BPFE. BPS. (2016). West Java in number. 54

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