Impact of Diversity on Regional Economic Growth: A Case Study of Indonesia

Abstract

Economic development at the national level cannot be separated from the influence of economic performance at the regional level. As a country with abundant natural resources and great human resource potential, Indonesia has 34 provinces with relatively different economic bases. Some areas depend on a single category: the primary, secondary, or tertiary sector. Meanwhile, the other provinces have business fields that contribute relatively equal to forming a fairly balanced Gross Regional Domestic Product (GRDP). These different economic bases produce various impacts when an economic shock occurs. Unfortunately, the effect of economic diversity on GRDP has rarely been the focus of previous studies. Therefore, this study investigates the influence of economic diversity on regional economic growth. Data were collected from the Central Agency of Statistics (BPS) from 2013 to 2020. Then, panel data with a fixed effects generalised least squares method were employed to determine the changes in the dependent variable caused by the changes of the independent variable. Furthermore, data analysis revealed that economic diversity positively and significantly impacts GRDP. In other words, encouraging all business fields to generate value-added goods and services within the region may increase its economy. Moreover, past time experiences empirically conclude that economic shocks heavily hit the tertiary sector. At the same time, the primary industry relatively survived and played the role of economic bearing to prevent an area from further suffering. Lastly, a suggestion for further study is to investigate a combination model of the primary, secondary, and tertiary sectors to support sustainable economic growth.