Capital Relocation and Regional Inequality: Evidence from Indonesia’s New Capital in East Kalimantan
DOI:
https://doi.org/10.23969/jrie.v6i2.432Keywords:
Capital city relocation, Regional inequality, Difference-in-Differences, East Kalimantan, IKN NusantaraAbstract
Indonesia's decision to relocate its national capital from Jakarta to Nusantara (IKN) in East Kalimantan has sparked substantial debate over whether this mega-project amplifies or alleviates spatial inequality in the host region. This study examines the causal effect of the capital city relocation on regional inequality by employing a Difference-in-Differences (DiD) approach using panel data from ten districts and cities in East Kalimantan over the period 2015–2024. Penajam Paser Utara and Kutai Kartanegara, the two districts directly hosting the new capital, are treated as the treatment group and compared against the remaining districts as controls, using four outcome variables: the Gini coefficient, GRDP per capita growth, the poverty rate, and the Human Development Index (HDI). The results show that the treated districts experienced meaningful improvements in economic growth and human development following the relocation, indicating that the project has generated tangible local benefits. However, these gains were accompanied by a widening of income inequality, suggesting that the economic momentum generated by relocation has been unevenly distributed, with urban enclaves and construction-related sectors benefiting disproportionately relative to surrounding communities. The parallel-trends assumption underlying the DiD identification strategy is confirmed, supporting the credibility of the causal estimates. These findings underscore the need for more equitable spatial development planning to ensure that the benefits of IKN's development are shared more broadly across the host region.
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