Analyzing Factors Affecting GRDP in Indonesia Using Spatial Panel Data Model

Each region in Indonesia has diverse economic growth. Various empirical studies focus on this problem and attempt to identify the factors that affecting Gross Regional Domestic Product (GRDP) at constant prices or economic growth. However, the research on GRDP at constant prices or economic growth is not solely enough on observation units in a certain time (cross-section); these units also need to be observed in several periods of time. Moreover, the existence of spatial dependencies, which usually occur on the objects observed in form of regions or locations, causes estimation with OLS generating biased and inconsistent results. This study aims to analyze the factors that affecting GRDP at constant prices, namely population, original local government revenue, government expenditure, domestic investment, foreign investment, and the total manpower using the spatial panel data model with the quasi-maximum likelihood estimation method. This study is a quantitative study with panel data of 33 provinces in Indonesia during 2010-2016 periods. The best model obtained from these data was the Spatial Lag Fixed Effect Model with five independent variables. The referred variables are the number of populations, original local government revenue, government expenditure, domestic investment, and foreign investment which have a positive and also significant influence on GRDP at constant prices of provinces in Indonesia, while the total manpower do not have significant influence.