Connectivity Infrastructure Development and Its Impact on Regional Disparities:
Evidence from Indonesia at the Beginning of the Digital Economy Era
RYAN ARIEFIANSYAH
This study analyses the impact of the development of connectivity infrastructure on
regional disparities in Indonesia with observation at the district level in Indonesia. Not only
the district level observation in a large archipelagic country, but another contribution that thisstudy tried to provide is also to expand the definition of connectivity infrastructure with thementioned of the digital economy era in the last decade. The mechanism that hypothetically canoccur from changes in the condition of connectivity infrastructure indicator and its
transmission to disparities based on various arguments and theories. First, increasing physicalconnectivity through the transmission of lower consumption costs could reduce disparities
among regions. Second, increasing digital connectivity through the transmission of increasing
income opportunities could reduce disparities among regions.
Using variable road density to describes physical connectivity and internet access todefined digital connectivity, this study will estimate their impact on the regional economic
outcome disparity within three periods of 2010, 2014, and 2018. The outcome using twoapproaches, which is through the income approach and expenditure approach using Fixed
Effect Panel Model as the main strategy, and it is also discussed if using the disparity measure
directly as the outcome. Furthermore, this study also preparing Instrumental Variable (IV) for
the digital connectivity, which is the interaction between “distance between district to capital”
and “electricity access” and estimate it using the 2SLS method.
The main result shows a consistent direction of the correlation. The road density whichrepresents physical connectivity shows an effect following the expectations, which is reducing
the distribution of expenditures and increasing the distribution of income. So, assumin g thetransmission described in the conceptual framework, physical connectivity provides evidence of
having a significant impact in reducing disparities among regions.
Meanwhile, the direction of the correlation shown by digital connectivity has not been inline with expectations and significantly positively correlated with the distribution ofexpenditures. And also having a negative correlation with the distribution of income with andwithout the intervention of distance and access to electricity factors. But there is no reason tocompletely neglect the importance of digital connectivity because hypothetically, digitalconnectivity could work in reducing disparities between regions through other transmissions.
And to strengthen this conclusion, a simulation was carried out using the coefficient of
the estimation results on the real growth of connectivity infrastructure in a district. The
simulation results show that as the connectivity infrastructure improves, the disparities
between districts also decrease. So, in a short sentence, this study could conclude thatconnectivity in general can reduce disparities between regions.
Keywords: Connectivity Infrastructure, Regional Disparities, Physical Connectivity, Digital
Connectivity, Expenditure, Income.