Construction of infrastructure index for Indonesia

Abstract

Purpose

The purpose of this paper is to construct indices on Indonesia’s economic infrastructure. The components of infrastructure include transportation, communications and electricity. In constructing the indices, the authors use the longest available data covering the period 1970-2015. The indices of each component of infrastructure are aggregated linearly with the weights calculated using principal component analysis (PCA). The infrastructure index for Indonesia has had a positive increasing trend since 1970, particularly supported by the increase in the infrastructure indices of electricity and telecommunication. Meanwhile, the infrastructure index of transportation has been relatively stable. The infrastructure index constructed shows positive relation with Indonesia’s GDP growth and GDP per capita.

Design/methodology/approach

In constructing the indices, the authors use the longest available data covering the period 1970-2015. The indices of each components of infrastructure are aggregated linearly with the weights calculated using PCA.

Findings

The infrastructure index for Indonesia has a positive increasing trend since 1970, particularly supported by the increase in the infrastructure indices of electricity and telecommunication. Meanwhile, the infrastructure index of transportation has been relatively stable. The infrastructure index constructed shows positive relation with Indonesia’s GDP growth and GDP per capita.

Originality/value

The novelty of this research is a construction of the infrastructure index for Indonesia. The infrastructure index is important to benchmark the level of infrastructure development and to understand its connection to economic growth. It is also an important barometer used by policymakers for infrastructure investment and planning purposes.

Citation

Sahminan, S., Hermansyah, O. and Rakhman, R.N. (2021), "Construction of infrastructure index for Indonesia", Studies in Economics and Finance, Vol. 38 No. 2, pp. 173-188. https://doi.org/10.1108/SEF-09-2018-0299