In recent decades, Indonesia has faced increasing rates of forest resource depletion. While economic development has been uneven across the 27 provinces of the country, this has not been considered as an important issue when analysing forest transformation. Economic theory provides some explanations for uneven regional development within a nation. It can also explain some aspects of regional differentiation between the Inner Islands and Outer Islands of Indonesia. An historical analysis of economic development in two provinces (Riau and East Kalimantan) can provide a better understanding of the main factors influencing regional development and the extent to which this development has taken place at the expense of forests. The present analysis emphasises factors such as regional biophysical characteristics, geographical position and road infrastructure. The consequences of industrial decentralisation in the Outer Islands for the rate of forest transformation are discussed, as well as some possible impacts of the transition from primary to secondary forests in one region, in light of its limited industrial sector diversification.