Economic Growth in East Java, Indonesia: A Geweke Causality Analysis
Tan Khee Giap, Mulya Amri

Abstract
This article presents a causality analysis of output growth in East Java, Indonesia’s second most competitive province after the capital city, Jakarta. We identify three variables which have stood out prominently for East Java: high output growth in the service sectors, a flexible labour market, and extensive infrastructure. Using a methodology developed by Geweke (1982), we measure the direction of causal effects between the three variables. Our findings confirm existing theories and research which argue that output growth is affected by the extent of infrastructure and quality of labour market. Such findings also support various calls for Indonesia to improve its infrastructure and labour market policies, and present East Java as a case from which lessons could be drawn for other Indonesian provinces.

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