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Fiscal decentralization and its impact on regional economic development and fiscal sustainability
... Aceh's longstanding dissatisfaction with its relationship with Jakarta and its share in earnings from its resources erupted yet again into armed conflict and demands for independence. An independence movement also has emerged into prominence in Papua, encouraged by East Timor's success (see Ford and Brodjonegoro, 2004, for more detail). ...
... To succeed, however, they will need to address the critical issues with regard to the implementation of the new laws. These include a familiar set of failings that derive from hastily assembled efforts to meet a short-term political timetable: lack of clarity with regard to the goals and priorities of the intergovernmental political, administrative and fiscal reforms; unclear assignment of functions between levels of government; lack of analysis to determine the adequacy of transfers to meet critical functions; lack of revenue decentralization; lack of coordination between the key ministries responsible for political and administrative decentralization (Ministry of Local Government) and intergovernmental fiscal relations (Ministry of Finance); inadequate attention to transition issues involving transfer of responsibilities as well as of civil servants; inadequate capacities in both central and local governments for their new roles; and the lack of a monitoring program to keep what is clearly a work-in-process, on track (Ford and Brodjonegoro, 2004). ...
... Furthermore, most of local governments still have some difficulties in creating their non-fiscal incentive packages due to lack of capacity and also to lack of commitment of making GRDP growth as one of main targets. It is no secret that most of local governments are more interested in the local budget issues (APBD) without realizing that such limited focus could jeopardize much more crucial issues, local economic (GRDP) growth that eventually helps reducing local unemployment (Brodjonegoro, 2004). ...
... Indeed, the official locally derived revenue ("PAD") made up less than 10% of the local budget for 87% of districts in 2002 (Brodjonegoro, 2004). Many district governments have expressed their dissatisfaction about too low funding to promote regional development, especially in relation to new infrastructure provision (Brodjonegoro, 2009). Led by the powerful democratic mayor, local governments have frequently used this perceived lack of funding to justify the introduction of new local taxes and levies, which have been described as "illegal and disruptive" (Brodjonegoro, 2009, p. 207) and "distorting" (Ray, 2009, p. 151). ...
... Column 3 shows that the combination of availability and quality of local physical infrastructure significantly decreases after the election of the democratic mayor. This matches the numerous Indonesian news reports on deteriorating infrastructure and a lack of attention by local governments to improve the quality of public service delivery during the democratization process (Brodjonegoro, 2009). Column 4 shows that the negative impact is driven by mayors without a college degree. ...
Does the economic success of democratization depend on newly elected leaders’ characteristics? We exploit the unique Indonesian democratization process, where districts exogenously democratized in different years. In a census of manufacturing plants, employment drops by 5% in districts that elect a non-college educated mayor, while employment stays constant under college graduates. Non-college educated mayors substantially raise taxation but provide less infrastructure, do not spend more on social programs, and are more often involved in corruption cases. Other leader attributes and district characteristics, as well as tests for pre-treatment trends, for selection on unobservables, and for close elections do not explain away the important role of leaders’ education in shaping local policies and growth.
... Several studies have explained local territory circumstances after regional autonomy in Indonesia. These studies focused on various sectors, such as health [4], economy [5,6], development [2,7], and forest [8,9]. Unfortunately, a limited number of scholars focused on the impact of regional autonomy on economic development and welfare in a specific region in Indonesia. ...
... Some studies have researched the empirical relationships between fiscal decentralization and regional convergence in Indonesia (e.g. Aginta et al., 2021;Brodjonegoro, 2009;Kurniawan et al., 2019;Mendez and Kataoka 2020;Suwanan & Sulistiani, 2010;Vidyattama, 2013). These studies have attempted to capture the spatial effects of decentralization, such as spillover effects based on observations of regional clustering. ...
Since 2001, Indonesia established fiscal decentralization to address the growing economic and social inequalities and promote regional economic development. Two decades later, the spatial effects of decentralization in reducing regional inequality in Indonesia are still unclear. Various studies indicate that geographical proximity, spatial linkages, and spillovers have major impacts on economic growth. This paper offers an empirical analysis of the long-run effects of fiscal decentralization and its spatial impacts on regional growth and convergence in Indonesia. The study uses district-level panel data over a 10-year period (2003–2013). We apply regional distribution indices, spatial cluster analysis, convergence analysis, and spatial econometrics. The convergence analysis uses GMM and spatial models. Our findings highlight the persistence of regional divergence and a widening development gap between regions, especially at the provincial level. The results show regional polarization and backwash effects with the strengthening of core regions and weakening of hinterlands. The paper shows that equalization funds are ineffective in reducing vertical and horizontal inequalities. Their distributional effect is unclear except for the revenue sharing fund which boosts economic growth. Furthermore, the paper demonstrates the importance of urban agglomerations, spatial proximity, labor size, and a skilled labor base in increasing regional economic performance. There are two main policy implications of this study. First, place-based economic policies are needed that emphasize endogenous local development and highlight the mobilization of resources (labor and capital). Second, national policies must support regional development based on a thorough understanding of the caveats of liberalization policies.
... Sustainable development needs to tackle the five major concerns about the welfare distribution, such as the end of extreme poverty, reducing inequality, increasing the degree of social mobility, mitigating discrimination, and fostering social cohesion (Sachs, 2015). Brodjonegoro (2009) also highlighted that decentralization policy should contribute to reducing the regional disparity between the western and eastern parts of Indonesia. Thus, development in decentralization must include dimensions of time (growth/development), income (equality), and local area (equity). ...
Purpose-This research aims to explore the relationship between decentralization policy and sustainable local development in Indonesia. Design/methodology/approach-(1) Sustainable Local Development Index (SLDI) analysis with the structural equation model; and (2) a multiple regression model on panel data to analyze the relationship between decentralization policy and sustainable local development. Findings-The effective decentralization policy in Indonesia is linked to the quality of sustainable local development based on the panel data analysis. In particular, the quality of the social-economic dimension appears to be more robust than environmental-institutional dimensions. Research limitations/implications-This research will contribute to an understanding of the role of Indonesia's decentralization policy in sustainable local development. It delivers recommendations on accelerating sustainable programs rely on specific issues, characteristics, and capacities across sectors and areas. Practical implications-The research can improve appropriate decentralization policies for sustainable local development in defining how Indonesia's provinces shall 'look' like in the future. Local governments require new transformative ideas to tackle regional disparity and local capacity. Originality/value-This research investigates the degree of sustainable local development with a specific index measurement based on a composite index. In a second step, my research examines the relationship between decentralization policy and the performance of sustainable local development with a panel data analysis.
... In the Indonesian context, there a are several studies that examine the empirical relationships between fiscal decentralization and economic performance [15,16,17,18,19] and the study on spatial dependences of economic performances [20,21,22,23,24,25]. However, these studies ignored the potential impact of spatial dependence on fiscal decentralization of neighboring regions. ...
Regional studies literature argues that neighboring regionscould impact each others’ economic performancetrough trade, technology diffusion, capital flow, and political stability. However, the emergence of decentralization has put the above argument into a new context. This study aims to explain the impact of fiscal decentralization on economic. The study analyse the impact of fiscal decentralization using lag value and ignores the existence of spatial dependency between regions. Our study concludes that the fiscal decentralization has a significant effect on economic performance at a lag value of 3 years, implying that public budgeting will have a significant impact on increasing economic performance on 3 years later. In addition, the paper provides evidence that regions with similar economic performance are located nearby suggesting the presence of spatial dependence.
... Hereby, the granted autonomy as given to the regencies and cities are conducted by giving broad discretion, responsibly, and proportionately reported to the regional government. It means that the transfer of responsibilities should be followed by a good arrangement and equitable utilization of national resources, in which the synergy of financial balance between central and regional governments can be properly achieved (Brodjonegoro, 2009;Butt, 2010;Cederman, Hug, Schädel, & Wucherpfennig, 2015;Eilenberg, 2011;Mardiasmo, 2004). ...
This research aims to evaluate the financial performance of four municipalities (Bengkulu City, Rejang Lebong Regency, South Bengkulu Regency, and North Bengkulu Regency) in Bengkulu Province, Indonesia. The study also identifies the contribution of several financial variables before and after the implementation of regional autonomy. Theoretically, regional autonomy enables these four municipalities to manage their Local Own-Source Revenue (LOSR or PAD - Pendapatan Asli Daerah) better because these municipalities now have to learn to manage their financial resources independently. However, the findings indicate that these four municipalities still exhibit a high financial dependency on the central government or the fiscal balance fund. Consequently, the contribution of LOSR to the total income is still low. Besides, the study finds that these four municipalities exhibit a sufficiently good efficiency ratio but a fluctuating LOSR growth ratio, especially in some municipalities before the proliferation of new municipalities. Further, the main variables of the degree of financial decentralization, local financial autonomy, efficiency, and LOSR growth do not exhibit significant differences between the pre- and post- regional autonomy implementation.
... Kebijakan pembangunan yang terpusat pada era sebelumnya telah menimbulkan berbagai permasalahan dalam pembangunan termasuk salah satunya kesenjangan pembangunan antardaerah. Oleh karena itu, orientasi lainnya dari desentralisasi fiskal adalah mengurangi kesenjangan pembangunan antardaerah (Brodjonegoro, 2003). ...
The objective of fiscal decentralization objective in Indonesia is to reduce development disparities. Regarding education development, one crucial issue is access disparity. Using 440 sub provincial database during 2005-2009, this study is aim to analyze the impact of fiscal decentralization in reducing disparity of primary education access. Using fixed-effect model, the result showed that Dana Alokasi Khusus (DAK) for Education, DAK Non Education, and Pendapatan Asli Daerah (PAD) have significant impact in reducing education access disparity along with the wealth and regional characteristics. Nonetheless efforts need to be done to optimize the equalization of education access including strengthening the provincial government role in resources allocation and distribution of basic education services.
Keywords: Fiscal Decentralization, Primary Education Access, Panel Data Analysis
Abstrak
Tujuan desentralisasi fiskal di Indonesia adalah untuk mengurangi kesenjangan pembangunan. Terkait dengan pembangunan pendidikan, salah satu masalah krusial adalah kesenjangan akses. Menggunakan data dari 440 database kabupaten kota selama 2005-2009, studi ini bertujuan untuk menganalisis dampak desentralisasi fiskal dalam mengurangi disparitas akses pendidikan dasar. Dengan menggunakan fixed-effect model, hasilnya menunjukkan bahwa Dana Alokasi Khusus (DAK) Pendidikan, DAK Non-Pendidikan, dan Pendapatan Asli Daerah (PAD) memiliki dampak yang signikan dalam mengurangi disparitas akses pendidikan bersama dengan karakteristik kekayaan dan regional. Berbagai upaya tetap perlu dilakukan untuk mengoptimalkan pemerataan akses pendidikan termasuk penguatan peran pemerintah provinsi dalam alokasi dan distribusi sumber daya pelayanan pendidikan dasar.
Kata kunci: Desentralisasi Fiskal, Akses Pendidikan Dasar, Analisis Data Panel
... Since the introduction of fiscal decentralization in 1999, Indonesian local governments had enjoyed a powerful legitimation to manage their financial resources. Indeed, the fiscal decentralization that embodied in the form of balancing funds aims to improve local government financial capacity and to create fiscal capacity equalization amongst local governments (Brodjonegoro, 2009). Each local government in Indonesia received transfer fund/balancing funds from central government i.e. general purpose grant that can be spent and managed fully by every local government. ...
This study aims to examine the effect of local revenue variance, variance of fund balances and budget account surplus (SILPA) for capital expenditure realization. The population in this study were all districts / cities in Indonesia, with observations taken from 2010 to 2014 amounting to 508 districts / cities from 34 provinces. Based on the Slovin formula, obtained a sample of 345 districts / cities as observation data. Data obtained from local government budget and budget realization report 2010-2014). Multiple regression analysis applied to data analysis. Empirical results indicate that the variance of local revenue is related to the realization of capital expenditure. The results also reported the relationship between variance of equilibrium funds and capital expenditure realization as well as the relationship between budget account surplus and capital expenditure realization. The results are also related simultaneously between the variance of local revenue, variance of fund balance, and budget account surplus (SILPA) for capital expenditure realization. The conclusions of this study are the variance of local revenue, the variance of fund balance, and the remaining budget have a positive effect on capital expenditure. Thus, local governments can be said to have changed the variance of Regional Income, balance funds and SiLPA to capital expenditures. The consequence is the emergence of new capital expenditure programs that may not be realized.
... Kebijakan pembangunan yang sentralistis pada era sebelumnya telah menimbulkan berbagai permasalahan dalam pembangunan termasuk salah satunya kesenjangan pembangunan antardaerah. Oleh karena itu orientasi lainnya dari desentralisasi fiskal adalah mengurangi kesenjangan pembangunan antardaerah (Brodjonegoro, 2003). ...
In education, one crusial issue of development is the disparity of primary education access. Using 440 regions database from 2005-2009, this study is aim to analize the impact of fiscal decentralization in reducing the enrolement of primary education in Indonesia. Three factors were included, i.e fiscal decentralization, socioeconomic factors and regional characteristics. The result of panel data estimation using fixed-effect approach on this study is that DAK for Education, DAK Non Education, and PAD have significant impact in reducing education acess disparity along with poverty and regional characteristic such as Java-non Java regions. For education level, another variable was also found significant including education of the society and regional characteristic such as proliferated-non proliferated regions. In general there is a facts and proves that fiscal decentralization improve education access equality, but several effort need to done to optimalize the equalization of primary education access in Indonesia.
... 4 The study of corporate governance and corruption is highly relevant in the context of middle-income countries, and especially for Indonesia, for at least three reasons. First, before the 1997 crisis, Indonesia had long employed a centralized government model and relied heavily on the executive power (Brodjonegoro 2009). In 1999, there was a dramatic change in the political system, when the government introduced a decentralization law. ...
The weak corporate governance framework in Indonesia, as in other countries in Southeast Asia, was deemed a crucial factor in deepening the financial and economic crisis in the late 1990s. Over a decade after the 1997 Asian financial crisis, Indonesia and other Southeast Asian countries have made substantial governance reforms. The reform measures of the institutional framework, both in the public and corporate sectors, were intended to transform Indonesia into a clean, transparent, and accountable country. While the reforms have resulted in increased political stability, improved government effectiveness, and a more conducive investment climate, corruption remains a major concern in Indonesia. This study aims to evaluate how corporate governance mechanisms can reduce the opportunities for corruption. By utilizing agency theory, we argue that a strong corporate governance institutional framework helps to reduce a country’s level of corruption. We focus attention on three components of corporate governance mechanisms, i.e., shareholder rights, the quality of the board of directors (BoD), and appropriate accounting and auditing standards, including transparency standards. In an attempt to strengthen corporate governance standards and practices in Indonesia, we conducted a comparative study among Southeast Asian middle-income countries, i.e., Indonesia, Malaysia, and Thailand. We rely on accessible secondary data such as corporate governance codes, laws, and regulations. Our study concludes that the Indonesian corporate governance institutional framework is less stringent compared to Malaysia and Thailand. This condition provides a favorable environment for corruption to persist because the standards and practices are less demanding and the companies do not necessarily have to comply with the existing regulatory framework.
... The process faced both unsettled political conditions and a slow economic recovery; Hill (2007) argues that the economy had only begun to recover by the beginning of 2003. The two decentralisation laws were improved upon by Law 32/2004 andLaw 33/2004, which provided more clarity about the roles and responsibilities of the different levels of government and interlinkages between central, provincial, and district governments (Brodjonegoro 2009, Holtzappel 2009). ...
This article analyses the consumption growth elasticity and inequality elasticity of poverty in Indonesia, with a particular focus on the decentralisation period. Using provincial panel data, we show that the effectiveness of growth in alleviating poverty across provinces was greater during decentralisation—that is, between 2002 and 2010—than at any other point since 1984. The growth elasticity of poverty since 2002 is estimated to have been –2.46, which means that a 10% increase in average consumption per capita would have reduced the poverty rate by almost 25%. However, we also find that rising income inequality negated a quarter to a third of the 5.7-percentage-point reduction in the headcount poverty rate. This increasing inequality has contributed to a lower level of pro-poor growth than that maintained in Indonesia before decentralisation.
... Under the law, that local own revenue is used to finance the needs for public services, while grants and revenue sharing is used to help the fiscal capacity of improving public services and regional development (Kajatmiko and Siddiq, 2004). However, in fact, the regions relies heavily on financial transfers (Lewis, 2005), and significant sources of income in the hands of central government (Firdausy, 2004;Bayhaqi;2004). Therefore, it is unavoidable to make the transfer of local government as the main financial sources. ...
This research aims to explain the relationship between local fiscal capacities, intergovernmental transfers with the realization of the budget. Using the sample budget of 190 districts in Indonesia, three hypotheses have been tested. The results of this study indicate a high dependence of local governments, to grants from the national government. Although there are close links between local fiscal capacities with performance budgeting, intergovernmental transfers are not fully mediating the relationship.
... The limited tax based has made local government heavy dependence on the intergovernmental fiscal transfer from central government, especially DAU. In fact, as reveal by Brodjonegoro (2004) the DAU is basically local government budget because of its foremost role. ...
Ten years after the crisis, Indonesia is still struggling to solve the problems in four major issues : economic stabilization and recovery, democratic transition and political reform, decentralization of political power, and the redefinition of national identity. This paper will explain the major changes in the political sphere, and how they affect the effectiveness of government in delivering economic recovery. This paper argues that democratic transition and decentralization affects economic recovery through the quality and effectiveness of governance. These changes have had mixed results in the economic policymaking. On the one hand the new system provides more check-and-balance mechanisms. On the other hand, it delays the decision-making process and creates new patterns of rent-seeking activities. This paper discusses these changes in two main parts. First, it quantitatively evaluates the impact of this transformation on the quality of institution and government effectiveness using the available and widely used Governance Indicators. Second, it provides a qualitative description on the process and outcomes of the political transformation.
The Oxford Handbook of Family Policy Over the Life Course examines how countries devised measures for child protection outlined in the United Nations Convention on the Rights of the Child (UNCRC). The UNCRC highlights the importance of protecting children from a range of human rights violations. In response, countries respond differently to human rights violations, which range between legislative responses, public administrative systems, and social service networks. Additionally, the Handbook offers a global typology of child protection systems to understand the diversity of service responses. The global typology then emphasizes protection against an array of childhood risks and represents the focal point for government intervention in the lives of families.
Los GAD´s municipales en Ecuador constitucionalmente poseen autonomía financiera, pese a ello, deben mantener las condiciones que mantengan la sostenibilidad de sus cuentas públicas. El objetivo de la investigación se sustenta en un análisis de evaluación de la sostenibilidad y solvencia, bajo un método analítico dinámico sobre el cual se obtiene el superávit primario requerido de los años subsiguientes de manera de cumplir en tiempo y forma sus obligaciones financieras. Como principal resultado se encontró que la mayoría de las entidades necesitan reestructurar sus cuentas fiscales de forma gradual para poder mantener unat rayectoria de deuda sostenible.
This study analyses the impact of fiscal decentralisation policy on economic development and poverty reduction. It focuses on the practice of intergovernmental fiscal transfer and on special autonomy policy in Aceh province, Indonesia, using data from 23 districts gathered from 2008 to 2018. Undertaking a panel data analysis, it will analyse the impact of intergovernmental fiscal transfer from central to local government on local government expenditure. The impact of local government expenditures and fiscal decentralisation practices on local gross domestic product (GDP) and poverty is also measured. The results show that several intergovernmental fiscal transfer policies in Aceh positively enhance the local expenditure. Further, the local government spending and fiscal decentralisation practices in Aceh improve the local GDP and reduce poverty levels in the region.
This paper examines the impact of own-source revenues and intergovernmental grants on districts’ infrastructure spending in Indonesia. As capacities to generate local revenue are lacking, intergovernmental transfer (IGT) became the main source of local capital spending. This paper uses econometric models to examine the determinants of infrastructure spending. By looking at institutions and economic structure, the study argues for the increasing importance of IGT for local capital spending and shows that specific allocation grants are crucial to ensure local infrastructure spending. This paper calls for a specifically district-tailored IGT fund to accelerate infrastructure development and reduce further regional disparities across Indonesia. This paper contributes to the literature by looking at the effect of IGT on infrastructure spending in different types of regions, including districts in Java, districts with municipality status and metropolitan districts.
After Soeharto stepped down in 1998, Indonesia began a radical decentralization program, one aspect of which was granting wide-ranging lawmaking powers to subnational governments. The national legislation establishing the decentralization framework gave power to the central government to review provincial-level laws, and, from 2014, for provincial governors to review city and county laws, and to invalidate them if they are inconsistent with national laws, morality, or public order. In 2017, the Constitutional Court declared these review mechanisms unconstitutional, deciding that these reviews should be conducted by the Supreme Court rather than the national or provincial executive governments. This decision reversed the trend of successive reforms from 2004 that had begun restoring political and legal power to the centre. It was also one of the most problematic in the Court’s history, as this article demonstrates. The legal reasoning was poor and incomplete, the Court appeared to be equally split (though the Court did not acknowledge this), and the consequences of the decision (which the Court did not appear to consider) are likely dire. The decision has caused great confusion, but despite its flaws may well lead to reforms requiring the Constitutional Court, rather than the Supreme Court, to review subnational laws.
Agriculture sector has always been main development priority in economic development in Indonesia. Dominancy wet rice farming issues made people in dryland area is neglected. A better targeting of development interventions requires careful investigation of household behaviors and rural institutions. This study focuses on what constraints and possibilities in dryland area using sustainable livelihood framework.
This is a case study that conducted in Sei Gohong Village. Literature review and open-ended interview conducted to collect primary data. Data is consolidated in Excel and descriptive statistics in SPSS is used. This resulted in analyses of local context, livelihood resources, policies and institutions, and livelihood strategies of different cluster of households.
This research found that the closer land to housing, the more is possibility to develop on-farm activities. As a contrast and in spite have many lands; the further land from settlement and more fragmented lands, the more likely is households investing on off-farm activities. Financial constraint to start and run activities is recognized in all households. Limited technical knowledge is also recognized by households that depend on on-farm and off farm with non-regular income. Theses suggested in supporting on-farm or off-farm activities based on resources endowment, transforming financial support’s system, and providing technical assistance instead of material support. This research is not anticipated dominant diversification strategy in all clusters.
Further research is required on the how to adapt specific characters of rural households in formal financial institutions, type of on off-farm activities to develop in different sites, and how each stakeholder could working together to balance technical and material assistant.
Key words: On-farm, off-farm, livelihood resources, livelihood strategy.
Agriculture sector has always been main development priority in economic development in Indonesia. Dominancy wet rice farming issues made people in dryland area is neglected. A better targeting of development interventions requires careful investigation of household behaviors and rural institutions. This study focuses on what constraints and possibilities in dryland area using sustainable livelihood framework. This is a case study that conducted in Sei Gohong Village. Literature review and open-ended interview conducted to collect primary data. Data is consolidated in Excel and descriptive statistics in SPSS is used. This resulted in analyses of local context, livelihood resources, policies and institutions, and livelihood strategies of different cluster of households. This research found that the closer land to housing, the more is possibility to develop on-farm activities. As a contrast and in spite have many lands; the further land from settlement and more fragmented lands, the more likely is households investing on off-farm activities. Financial constraint to start and run activities is recognized in all households. Limited technical knowledge is also recognized by households that depend on on-farm and off farm with non-regular income. Theses suggested in supporting on-farm or off-farm activities based on resources endowment, transforming financial support's system, and providing technical assistance instead of material support. This research is not anticipated dominant diversification strategy in all clusters. Further research is required on the how to adapt specific characters of rural households in formal financial institutions, type of on off-farm activities to develop in different sites, and how each stakeholder could working together to balance technical and material assistant.
Policymakers have increasingly advocated decentralization as a way of enhancing educational quality, although its potential in this area is still subject to debate. This article traces the impetus and popularity of the reform as a policy solution over the past few decades. It argues that three trends in particular have characterized the post-2000 era: a deepening of reforms implemented earlier, an enhanced focus on school decentralization interventions, and a notable increase in schemes in the African region. Interestingly, in individual nations, donor agencies have often encouraged the reforms that make up these trends. The article then examines the empirical evidence on the relationship between decentralization and educational quality, using detailed case studies of Indonesia and Kenya. The case studies not only showcase these decentralization trends but also demonstrate that different decentralization approaches can result in dramatically different outcomes in educational quality. On this front, the article argues that design and implementation features tend to shape quality outcomes—and those features, in turn, are fundamentally shaped by economic conditions as well as by the politics of donors and local stakeholders.
This paper investigates the determinants of firm innovation in Indonesia. Using quality of local regulations index constructed by the Indonesia’s Regional Autonomy Watch (KPPOD) as measure of institutions, We found that better institutional quality at the local level was associated with more innovation and that firms experiencing major obstacle in access to finance were less likely to innovate. Access to finance is more critical for small and medium enterprises (SMEs) whereas institutional quality is more important for large firms. The positive impact of better institutions on innovation is asymmetrically distributed. Better local institutional quality disproportionately benefited non-constrained firms.
Abstrak
Makalah ini menyelidiki faktor-faktor penentu terjadinya inovasi pada perusahaan di Indonesia. Sebagai proksi kelembagaan digunakan variabel Peraturan Daerah yang dibuat oleh Komite Pemantuan Pelaksanaan Otonomi Daerah (KPPOD). Penelitian ini menemukan bahwa kualitas kelembagaan yang baik pada tingkat daerah erat kaitannya dengan tingkat inovasi yang lebih tinggi dan perusahaan-perusahaan yang mengalami kendala akses keuangan cenderung tidak melakukan inovasi. Faktor akses keuangan lebih menentukan bagi perkembangan inovasi perusahaan perusahaan kecil dan menengah sedangkan kualitas kelembagaan lebih menentukan bagi perusahaan besar. Dampak positif dari kelembagaan yang baik terhadap tingkat inovasi terdistribusikan secara asimetris dan faktor kelembagaan yang baik lebih berdampak positif terhadap perusahaan yang tidak mengalami kendala keuangan.
Kata kunci: Akses Keuangan; Inovasi Perusahaan; Faktor Penentu Inovasi; Kesenjangan Inovasi; Kelembagaan
JEL classifications: O38; O53; G38
The complexity of social systems is characterized by the possible occurrence of simultaneous or sequential processes of structural change. This paper is focused on certain types of structural change: (i) those produced by assembly and disassembly and (ii) those resulting from decisional and/ or behavioral processes, including both bottom-up and top-down processes. These general concepts from system theory are applied to the case of Indonesia's decentralization. The well-known story of Indonesia's remarkable transition to a democratic society and decentralized nation is presented here in an alternative manner that has allowed us to identify types of structural changes in empirical events. Ultimately, this analysis offers a better explanation of the intrinsic complexity of any social organization and demonstrates an approach to similar problems.
Since the introduction of regional autonomy legislation in 1999, Indonesia has embarked on the world's biggest experiment with democratic decentralization. The intertwined processes of democratization and decentralization have dismantled Indonesia's centralized authoritarian system and reordered its governmental structures. These conjoined processes have set in motion conditions for the transformation of a number of Indonesia's secondary cities into regional ‘centers’ through the influx of new peoples, funding and ways of interacting within localized contexts and with the outside world. In this article I consider Indonesia's decentralization processes through the lens of the city, focusing on three key areas in the rising profile and development of urban centers. First, I look at the framing of Indonesian cities within contemporary urban discourses to highlight the array of urban spaces that coexist in the era of decentralization. Second, I describe how Indonesia's decentralization laws have structurally privileged cities by bypassing the provincial level and devolving most state powers directly to sub-provincial administrations. Third, I explore how Indonesian cities compete and cooperate over limited state resources under the decentralized system and why some cities have been able to reinvent themselves as new centers in planning, practice and innovation, and why others continue to lag behind.
More than a decade since Indonesia's radical decentralisation process commenced, this article examines whether the economic performance of neighbouring regions – the neighbourhood effect – can determine the speed of regional convergence. The results suggest that the inequality of gross regional domestic product per capita, as indicated by the Williamson index of regional inequality, may increase slightly in times of insignificant estimated speeds of convergence – especially because of the growth of Jakarta. In contrast, changes in the Human Development Index numbers for Indonesia indicate that regional convergence is taking place, although its speed is decreasing. The neighbourhood effect could be significant in both cases, but it has had little effect on the speed of convergence.
While many countries have decentralized budget spending in the last decade, few have tried to do so as quickly and as ambitiously as Indonesia. The 2001 'sink-or-swim' decentralization largely abolished the hierarchical relationship between the center, province and the district and transferred around one third of central government expenditure to the regions. 1 This replaced the deconcentrated agencies of central government (ie. central government units operating in the regions) with a presumption that (despite Indonesia being a unitary state) local governments undertake all spending responsibilities other than those specifically assigned to the national government. 2 Provinces and districts are responsible for an increasing share of national personnel and material expenditures, and it is reported that some sixty percent of the routine budget and just under forty percent of development budget is managed at the sub-national level. 3 Local budgets are approved by autonomous (parliament like) local councils, replacing the previous deliberative councils, with resource allocation decisions being made by an elected local mayor, the local planning agency (BAPPEDA) and local finance office (Badan Keuangan).
Indonesia's 1999 decentralization law gave local governments in Indonesia an unprecedented opportunity to adopt pro-development policies. In this paper we study whether decentralization has in fact generated improved economic performance in Indonesia. Using a synthetic case control methodology, we argue that 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.
Indonesia’s 1999 decentralization law gave local governments in Indonesia an unprecedented opportunity to adopt pro-development policies. We estimate the effect of decentralization (enacted in 2001) on national economic performance using a synthetic case control methodology. Our results indicate that decentralization has had no discernible effect on Indonesia’s economic output as measured by gross domestic product. To explain this finding, we use subnational data to probe two 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 institutions can each undermine the supposed development-enhancing promises of decentralized government in developing countries.
Following the remarkably successful 2014 parliamentary and presidential elections in Indonesia, attention now turns to the new president and his agenda for the next five years. President Joko Widodo, known as Jokowi, has emphasised the importance of strong economic growth and rising living standards. But he faces significant, broad-ranging economic challenges and, perhaps not surprisingly, serious discussion of these issues did not feature during the election campaigns. In many respects the economy is at a crossroads, facing the choice between a business-asusual scenario of no reform and consequently sluggish economic growth, and a politically difficult reform agenda that would set it on a higher growth path. Economic policymakers regard the events of 2013 as a mini economic crisis, and they feel vindicated in their explicit preference for stability over growth—that is, for slowing the economy through tighter fiscal and monetary policy and letting the currency decline. For now, the economy is slowing but holding up quite well, especially by comparative international norms and considering foreign and domestic headwinds, including possible macroeconomic and financial fragilities. Here we examine these headwinds—from global economic volatility and declining commodity prices, particularly in the wake of the so-called Bernanke shock of May 2013, to the continuing policy drift at home. We investigate whether there is evidence of an emerging adjustment from the commodity-driven growth of the past decade to some of the traditional tradables sectors, especially manufacturing. While the commodity boom is almost certainly a thing of the past—at least at levels witnessed since 2005—the country's political narratives and the government's microeconomic policies appear to be still premised on an era of plenty funded by a disappearing boom. We speculate on likely options and directions for what in all likelihood will be a ‘Jokowi decade’.
Regional autonomy and fiscal decentralization has become a hot political and economic policy issue in Indonesia since the fall of the Soeharto Regime. In response, the interim government of President Habibie enacted two new laws in 1999, to promote regional autonomy and fiscal decentralization, namely Law on Local Autonomy (No. 22/1999) and Law on Fiscal Relations between Central and Local Governments (No. 25/1999), which the new government of President Abdurrahman Wahid is in the process of implementing. However, the authors maintain that the basic designs of these laws are seriously flawed, and that the government of Indonesia would be well advised to go back to the drawing board. First, under the new laws, the central government's power is substantially to be devolved to the second level local governments, whose administrative, managerial and planning capabilities are inadequate. Secondly, a major part of local governments' revenue would rely on the sharing of natural resources taxes, which would aggravate horizontal imbalances. Thirdly, there would be thus a need for large-scale fiscal transfers, which would strain the central government's budget. Lastly, given the enormity of the tasks ahead, a more gradualist approach is preferable.