Human capital :: The impact of education on regional economic growth in Indonesia

ILMAWAN, Yuni Prasetyo Budi, Prof. Yoshi Takahashi

2009 | Tesis | S2 Magister Economika Pembangunan

The role of education on growth has long been recognized in many studies. The significance of education on growth is that education creates new knowledge that influences the production process. Education also becomes a medium for the transmission of technology. The objective of this study is to analyze the impact of education on regional economic growth in Indonesia. We also analyze the impact of education between different regions. Education here is measured by the educational attainment of the labor force whereas regional economic growth is measured by real per capita gross regional domestic product (GRDP). The tool of analysis is regression using panel data with the Generalized Least Square (GLS) method and Fixed Effect Model. It uses provincial level data supplied by Statistic Indonesia (BPS) for 30 provinces in Indonesia during the period: 2000-2007. The regression result shows that education has a significant and positive impact on regional economic growth in Indonesia. We find that the higher the level of education the greater the contribution to regional economic growth. By considering the share of the agricultural sector in regional and national GDP, we differentiate between more agricultural regions and less agricultural regions and we find that primary education has a more significant impact in more agricultural regions. Even so, in both regions we find that tertiary education has the highest contribution to GRDP. It occurs because GRDP is mainly supported by other sectors that require tertiary education. From all cases we found strong evidence that in the regional development process, human capital in a province, measured by the educational attainment of the labor force, contributes to provincial economic growth, measured by per capita GRDP. So if the government wants to increase regional economic growth, one of the development policies to be emphasized should be increasing human capital, specifically by enhancing the educational attainment of the labor force. In general, we can also observe that Indonesia is moving from an agriculture-based to an industrial-based economy. However, the different impact of human capital in different conditions suggests that certain policies for education are needed for certain regions

Kata Kunci : Human capital,Education,Regional economic growth