Economic growth and inter-regional disparity: An economic policy debate

Since the implementation of the decentralisation policy in 2001, it has brought different facets and consequences onto the Indonesian economy. International experiences expose it that this policy has positive aspects in social and democratic. On the other hand, it will hurt the economic development. It is a known fact that this policy needs better people's participation and involvement in policy decision, but it should bring the improvement of economic development and increasing life quality of the people in the end. The Indonesian government has shown effort to achieve all objectives, despite being under certain limited conditions. For example, through increasing transfer funds to local government year to year, it is expected that development problems such as inter-regional disparity can be reduced significantly. Based on the above problem, this study was conducted with the aim to analyse the impacts of fiscal decentralisation, education, unemployment, infrastructure, manufacture sector, regional and minimum wages on inter-regional disparity occurring in Indonesia. In addition, the study was done to determine factors influencing regional economic growth. For this purpose, secondary data were used to identify the problems and an explorative method was used to explain and answer the research questions. The study indicated several findings. First, economic growth does not affect regional disparities, while fiscal decentralisation in term of spending and revenue share influences economic growth. Second, income disparity influences economic growth, while fiscal decentralisation has no influence on economic growth.