Market Potential and Regional Per Capita GRP Differentials : Application of the NEG Model to Indonesian Provinces

This study is conducted in order to examine the inter-provincial per capita GRP (Gross Regional Product) disparities in Indonesia under the NEG (New Economic Geography) framework. The coefficient of variation shows that the disparities are decreasing in the period of 1993-1997 and increasing in the period of 1998-2004. On the basis of the disparities trends, those two different periods are examined in our analysis. By utilizing wage equation which developed by Fujita, et al.（1999）we make use of panel data analysis in estimating the role of domestic market access, foreign market access, urbanization and human capital on interprovincial per capita GRP. The findings suggest that domestic market access, foreign market access and human capital play important roles on inter-provincial per capita GRP disparities, while urbanization shows reverse role because of excess of urban labor.