Spatial Analysis of Population Migration and Investment on Unemployment in Indonesia

Abstract

Unemployment is a structural problem that remains a challenge for the Indonesian economy. Unemployment rates across regions are interconnected due to geographic proximity, population mobility, and economic flows. This study aims to analyze the spillover effects of population migration, foreign direct investment (FDI), and domestic investment (DI) on interprovincial unemployment rates in Indonesia, taking into account spatial interdependence. The study uses panel data from 34 provinces over the 2019–2024 period. The Spatial Durbin Model is employed to capture interregional interactions. The estimation results show that in-migration and domestic investment, significantly influence local unemployment. Significant spillover effects are observed for in-migration. Meanwhile, FDI does not show a significant effect either directly or indirectly. Population migration flows from other provinces are found to create externalities that trigger an increase in unemployment in the destination province due to high competitive pressure in the local labor market. Furthermore, spillover effects can significantly amplify or reduce the total impact on regional unemployment, depending on the direction of interprovincial investment flows. Thus, a province’s unemployment rate is highly vulnerable to the dynamics of population and capital mobility occurring in neighboring regions, necessitating integrated and collaborative interregional labor market policies to address this issue.