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Contents Introduction

This paper examines regional income disparity in Indonesia for the 28 years to 2005. It first shows that the inter-provincial distribution of income differs greatly depending on whether oil and gas income is included or not. It then investigates inter-provincial income disparity in Indonesian provinces using the distribution approach, which employs the Markov transition matrix to capture transition dynamics and produce corresponding ergodic distributions. This analysis suggests that if oil and gas income is included and the distribution approach is used, there is some evidence of increasing regional disparity. If oil and gas income is excluded, the distribution become bimodal, which also suggests increasing regional disparity. Furthermore, if population growth in rich regions is relatively slow and past dynamics hold, inter-regional disparities could increase in the future.