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Decentralization and Economic Performance in Indonesia

Published online by Cambridge University Press:  24 March 2016

Thomas B. Pepinsky  and
Maria M. Wihardja
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Abstract

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Indonesia's 1999 decentralization law gave local governments in Indonesia an unprecedented opportunity to adopt prodevelopment policies. In this article, we study whether decentralization has in fact generated improved economic performance in Indonesia. Using a synthetic case control methodology, we argue that Indonesian decentralization has had no discernable effect on the country's national-level economic performance. To explain why not, we use subnational data to probe two political economy mechanisms—interjurisdictional competition and democratic accountability—that underlie all theories linking decentralization to better economic outcomes. Our findings suggest that extreme heterogeneity in endowments, factor immobility, and the endogenous deterioration of local governance institutions can each undermine the supposed development-enhancing promises of decentralized government in emerging economies such as Indonesia.

Keywords

Indonesiadecentralizationeconomic developmentcase control methods
Type
Articles
Information
Journal of East Asian Studies , Volume 11 , Issue 3 , December 2011 , pp. 337 - 371
Copyright
Copyright © East Asia Institute 

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