REGIONAL ECONOMIC MODELLING FOR INDONESIA: IMPLEMENTATION OF IRSA-INDONESIA5 | Resosudarmo | Journal of Indonesian Economy and Business 6259 10665 1 PB

Journal of Indonesian Economy and Business
Volume 26, Number 3, 2011, 287 – 309

REGIONAL ECONOMIC MODELLING FOR INDONESIA:
IMPLEMENTATION OF IRSA-INDONESIA5*
Budy P. Resosudarmo
The Australian National University
Canberra, Australia
(budy.resosudarmo@anu.edu.au)
Arief A. Yusuf
Padjadjaran University
Bandung, Jawa Barat, Indonesia
(arief.yusuf@fe.unpad.ac.id)
Djoni Hartono
University of Indonesia
Depok, Jawa Barat, Indonesia
(djoni.hartono@gmail.com)
Ditya A. Nurdianto
The Australian National University
Canberra, Australia
(ditya.nurdianto@kemlu.go.id)

ABSTRACT
Ten years after Indonesia implemented a major decentralisation policy, regional
income per capita disparity and excessive rate of natural resource extraction continue to
be pressing issues. There are great interests in identifying macro policies that would
reduce regional income disparity and better control the rate of natural extraction, while
maintaining reasonable national economic growth. This paper utilises an inter-regional
computable general equilibrium model, IRSA-INDONESIA5, to discuss the economy-wide
impacts of various policies dealing with the development gap among regions in the
country, achieving low carbon growth, and reducing deforestation. The results of
simulations conducted reveal that, primarily, the best way to reduce the development gap
among regions is by creating effective programs to accelerate the growth of human capital
in the less developed regions. Secondly, in the short-term, the elimination of energy
subsidies and/or implementation of a carbon tax is effective in reducing CO2 emission and
producing higher economic growth, while in the long-run, however, technological
improvement, particularly toward a more energy efficient technology, is needed to
maintain a relatively low level of emission with continued high growth. Thirdly, if reducing
deforestation means reducing the amount of timber harvested, it negatively affects the
economy. To eliminate this negative impact, deforestation compensation is needed.
Keywords: computable general equilibrium,
environmental economics

*

development

planning

and

policy,

Budy P. Resosudarmo, Arief A. Yusuf and Djoni Hartono built the inter-regional computable general equilibrium
(IRCGE) model and gathered the inter-regional social accounting matrix (IRSAM) data utilised in this paper for the
Analysing Pathways to Sustainability in Indonesia project, a collaborative project between Bappenas, AusAID, CSIRO
and the World Bank. All mistakes in this paper, however, are the authors’ responsibility.