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September 10, 2025Open Access

Indonesia's Economic Growth: Role of Human Capital, Physical Capital, and Social Infrastructure

Key Points

Indonesia's economic growth is significantly influenced by human capital, physical capital, and social infrastructure.
Data analysis over 54 years showed that while human and physical capital positively affects GDP, social infrastructure has a detrimental impact.
The study employed an endogenous growth framework and used ordinary least squares estimation on macroeconomic indicators.
The findings highlight the need for governance reforms and investment in social infrastructure to bridge urban and rural gaps.

Abstract

Indonesia's economic prosperity is measured by its growth, a key United Nations Sustainable Development Goal (SDG 8). Despite funding increases, education and healthcare gaps impede workforce development and economic progress. Inadequate social infrastructure reduces production efficiency. Limited research exists on the impact of human capital, physical capital, and social infrastructure on Indonesia's growth. This research examines these factors and technological progress on GDP using an endogenous growth framework. The study examines physical capital's contribution, assesses human capital's impact, analyzes social infrastructure's effect, and explores their interplay in growth. It analyzed 54 years of data from 1970 to 2023, focusing on GDP per capita, physical capital, labor, human capital, technological progress, and social infrastructure. Data came from World Bank Development Indicators and Penn World Table 10.1. Researchers converted data to logarithmic scales and analyzed them using EViews 12. Ordinary least squares estimation examined macroeconomic indicators. Augmented Dickey-Fuller and Philips-Perron tests checked variable stationarity. Johansen cointegration results showed cointegration between variables, with lag order 2 as optimal. Findings revealed that physical capital, labor, and human capital positively affected output, while social infrastructure negatively impacted output due to resource misallocation. Technological advancement has no effect. The Theil coefficient of 0.003355 indicated outstanding performance, while SMAPE showed 49.35% average prediction error. The study concluded that capital, labor, human capital, and social infrastructure influence growth. Addressing corruption, disparities, and infrastructure gaps between rural and urban regions is essential. Implementing governance reform, fair investment, innovative financing, and community involvement will help realize the social infrastructure's potential for growth.

Indonesia's Economic Growth: Role of Human Capital, Physical Capital, and Social Infrastructure

Key Points

Abstract

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