SPATIAL VARIATIONS IN TECHNICAL EFFICIENCY AND RETURN TO SCALE IN THE INDONESIAN ECONOMY

This paper reports an analysis of technical efficiency and returns to scale in the Indonesia economy during 1983-2013 with special attention to the spatial dimension of the economy. The study focused on seven group of islands: Sumatera (10 Provinces), Java (6 Provinces), Kalimantan (4 Provinces), Sulawesi (6 Provinces), Bali-Nusa Tenggara (3 Provinces), and Maluku (2 Provinces) and Papua (2 Provinces). Cobb Douglass production function was employed to calculate technical efficiency and return to scale using regression analysis. Time series data during 1983-2013 on Gross Regional Domestic Bruto, Capital Stock, and Employment were collected from many sources at the National Statistics Agency. The results show that technical efficiency in production varies among regions. Provinces with coefficients of technical efficiency below that at national level exhibited increasing return to scale. Otherwise, the Provinces with coefficients of technical efficiency above that at national level exhibited decreasing return to scale