The Effect of Human Capital and Trade on The Convergence of Indonesian Labor Productivity
Krismanti Tri Wahyuni
Politeknik Statistika STIS
Abstract
Trade is the most important sector that provides the largest contribution in the services sector in Indonesia. This sector has grown rapidly in the past decade with the modern way of trading because of the influence of online systems. This study aims to determine the influence of trade and human capital in this digital era on the Indonesian economy and to find out whether labor productivity convergence occurs in Indonesia, and to find out factors that accelerate convergence. The analytical method used is dynamic panel data with the GMM First Different approach. This study shows that sigma convergence occurs in Indonesia based on the variation coefficient of the dependent variable. Absolute beta convergence and conditional beta convergence also occur during the study period, indicated by the dependent variable lag coefficient that is significant and less than one. Exports and imports between countries and between regions are proxy trade variables, while internet use and long school expectations are proxy variables for human capital. Physical capital (proxied by using district/city and provincial capital expenditures) and human capital, overseas exports, inter-regional exports and inter-regional imports have a positive effect on labor productivity in Indonesia, and increase the convergence rate so that the time needed to cover the gap will be more short.
Keywords: human capital, trade, convergence, labor productivity, dynamic panel data
Topic: Human Capital Development Strategies