Economic Convergence in Sumatra Island: Stochastic Approach

Abstract

Purpose: convergence occurs when regions with poor economies tend to grow faster than regions with rich economies, so poorer regions tend to catch up with rich regions in terms of GRDP or per capita products. The concept of convergence is dividedinto3 (three) namely sigma convergence, absolute convergence, and conditional convergence. This study focuses on analyzing the trend of convergence based on the approach to the concept of convergence with a concern for analysis, namely stochastic convergence.Methods: the analysis of convergence using a stochastic approach and a sigma and beta convergence approach for each province on the island ofSumatraduringthe2011–2020 periods. This research data uses secondary data with a combination of time-series data and cross-sectional data obtained from the Central Statistics Agency, the Ministry of Finance, and the Investment Coordinating Board. Calculation of beta convergence is based on the equation model developed by Barro and Sala-I-Martin (1990) and stochastic convergence based on the measurement model by Ludlow and Enders (2000).Results: the finding from this study shows that there is a stochastic convergence in all provinces on the island of Sumatra which is described based on the Sumatra. The economy has proven Beta convergence which explains the convergence with a relatively low rate of convergence, but the addition of determinant variables such as Domestic Investment and government spending has an impact on increasing the rate of convergence in the island of Sumatra.Conclusions and Relevance: the recommendation for further research emphasizes the spatial interaction between regions because the stochastic stocked test has not been able to see the interdependence between regions that causes convergence.