A Neoclassical Model of Regional Growth in Indonesia
In this paper a neoclassical model of regional growth is specified, estimated, and applied to the provinces of Indonesia. While parametric estimates indicate that factors of production respond as expected to neoclassical incentives, the attractiveness of growing regions for capital and labor inputs leads to instability and divergence among regions when the model is solved dynamically. A simulation of government intervention via a policy of encouraging capital growth in lagging regions demonstrates the potential of reversing such effects and encouraging regional convergence.
Giarrantani, Frank and Soeroso, "A Neoclassical Model of Regional Growth in Indonesia" (1985). Theory and Methods. 83.