The Relationship of Internet Adoption and Economic Performance in Indonesia

This paper seeks to examine the relationship between internet adoption and economic performance in 33 provinces in Indonesia. Panel covering 33 provinces in Indonesia during the period 2005-2011 has been constructed to measure economic growth as a function of internet adoption, income inequality, initial income, human capital and investment. The panel data estimation shows that there is no significant relationship between growth and internet adoption among 33 provinces in Indonesia. The analysis also finds that income distribution is not significant in determining economic growth in Indonesia regions. Furthermore, other variables show significant effect on growth as expected. Relevance to Development Studies Economic performance of a country can be influenced by many factors. As a general purpose technology, ICT and especially internet has long been consid-ered as an engine that can promote economic growth and development. Moreover, Indonesia as developing countries is struggling in order to improve its economic performance. Hence, it is relevance that Indonesia uses these technologies as a means of economic engine that can be used to catch up its economic performance with developed countries. Nevertheless, there is still no conclusive evidence on whether the internet penetration will create significant effect on economic performance. Thus, this study is trying to add existing literature on order to seek the relationship of internet adoption on economic growth. Unlike other literature that usually use cross country data, in this study I use data from 33 provinces from Indonesia. The study on this relationship of internet adoption on economic performance becomes important in order to justify the investment of this technology in the future.