Modern Applied Science; Vol. 13, No. 1; 2019 ISSN 1913-1844 E-ISSN 1913-1852 Published by Canadian Center of Science and Education 148 Analyzing Factors Affecting GRDP in Indonesia Using Spatial Panel Data Model Mertha Endah Ervina 1,2 & I Gede Nyoman Mindra Jaya 1 1 Department of Statistics, Universitas Padjadjaran, Bandung, Indonesia 2 BPS-Statistics Indonesia, Indonesia Correspondence: Mertha Endah Ervina, Department of Statistics, Universitas Padjadjaran, Bandung 40132, Indonesia. E-mail: merthiez@gmail.com Received: October 27, 2018 Accepted: November 5, 2018 Online Published: December 15, 2018 doi:10.5539/mas.v13n1p148 URL: https://doi.org/10.5539/mas.v13n1p148 The research is financed by BPS-Statistics Indonesia. Abstract Each region in Indonesia has diverse economic growth. Various empirical studies focus on this problem and attempt to identify the factors that affecting Gross Regional Domestic Product (GRDP) at constant prices or economic growth. However, the research on GRDP at constant prices or economic growth is not solely enough on observation units in a certain time (cross-section); these units also need to be observed in several periods of time. Moreover, the existence of spatial dependencies, which usually occur on the objects observed in form of regions or locations, causes estimation with OLS generating biased and inconsistent results. This study aims to analyze the factors that affecting GRDP at constant prices, namely population, original local government revenue, government expenditure, domestic investment, foreign investment, and the total manpower using the spatial panel data model with the quasi-maximum likelihood estimation method. This study is a quantitative study with panel data of 33 provinces in Indonesia during 2010-2016 periods. The best model obtained from these data was the Spatial Lag Fixed Effect Model with five independent variables. The referred variables are the number of populations, original local government revenue, government expenditure, domestic investment, and foreign investment which have a positive and also significant influence on GRDP at constant prices of provinces in Indonesia, while the total manpower do not have significant influence. Keywords: economic growth, GRDP at constant prices, quasi-maximum likelihood, spatial lag fixed effect, spatial panel data 1. Introduction Economic growth is one of the indicators to measure national development level of success. The economic growth of an area is measured using the growth of Gross Regional Domestic Product (GRDP) at Constant Prices. Some regions have higher economic growth than other regions. Thus, many empirical studies focus on this problem and try to identify the factors that influence GRDP at constant prices or economic growth. Common method used to analyse variables affecting GRDP at constant prices or economic growth is multiple linear regression. However, the research of GRDP at constant prices or economic growth can not only be done to cross sectional observation units, but these units also need to be observed over periods of time. Combination data of cross-sectional data with time series data is called panel data. Baltagi (2008) as cited in Eliana (2016) states that there are several advantages in using panel data, namely data that is heterogeneous, more informative, greater degrees of freedom, superior in studying dynamic change, more capable in detecting and measuring influences that cannot be observed on pure cross-sectional data and pure time series. For example; to determine whether domestic investment can increase or decrease the GRDP at constant prices can be identified by observing an area before and after the domestic investment. Furthermore, the characteristics of the region are considered permanent so it can be seen whether the domestic investment will affect the GRDP at constant prices and how strong the influence will be. One of the assumptions needed in the regression with ordinary least square (OLS) estimation method is that each