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Statistical modeling to analyze factors affecting the middle-income trap in Indonesia using panel data regression
Vita Ratnasari1, Salsabila Hidayatul Audha1, Andrea Tri Rian Dani2
1Department of Statistics, Faculty of Science and Data Analytics, Institut Teknologi Sepuluh Nopember, Surabaya, Indonesia.
Methodsx
|September 29, 2023
Summary
Indonesia faces the Middle-Income Trap (MIT), hindering economic growth. Key factors like life expectancy and investment influence provincial MIT, with a 97.65% accurate predictive model.
Area of Science:
- Economics
- Development Studies
- Regional Economics
Background:
- The Middle-Income Trap (MIT) describes economies stagnating after reaching middle-income status.
- Indonesia has experienced fluctuations, moving between middle and upper-middle-income classifications.
- Provincial-level analysis is crucial to understand localized MIT dynamics within Indonesia.
Purpose of the Study:
- To identify the characteristics of the Middle-Income Trap (MIT) at the provincial level in Indonesia.
- To determine the key factors influencing a province's entrapment in the MIT.
- To develop a predictive panel data regression model for MIT in Indonesian provinces.
Main Methods:
- Utilized panel data regression analysis, combining cross-sectional and time-series data.
- Employed Gross Regional Domestic Product (GRDP) per capita from 2010-2020 as a proxy for the MIT index.
- Analyzed data published by the Central Bureau of Statistics (BPS).
Main Results:
- Identified three significant variables influencing the Middle-Income Trap: Life Expectancy, Gross Participation Rate, and Gross Fixed Capital Increase.
- Developed a panel data regression model with a high accuracy of 97.65%.
- The model provides insights into the specific drivers of MIT at the provincial level.
Conclusions:
- Life Expectancy, Gross Participation Rate, and Gross Fixed Capital Increase are critical determinants of MIT in Indonesian provinces.
- The developed model offers a robust tool for understanding and potentially mitigating MIT.
- Targeted policy interventions focusing on these variables could help Indonesian provinces escape the Middle-Income Trap.
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