Abstract

This paper analyzes the changes in determinants of inter-provincial income inequality in Indonesia from 1983 to2004 associated with structural changes using the bi-dimensional decomposition method of a population-weighted coefficient of variation. The method unifies two inequality decompositions by regional groups and GRP components (industrial sectors) and thus enables us to assess the contributions of GRP components towithin-region and between-region inequalities, as well as to overall inequality. As the share of mining has decreased, the spatial distribution of manufacturing has played a more importantrole in the inequality of Sumatra and Kalimantan, while the primacy of Jakarta, with strong urbanization economies, facilitated by globalization and trade and financial liberalization, has determined much of Java-Bali's inequality and, therefore, overall inequality in Indonesia.