00074918.2015.1023415 copy
Bulletin of Indonesian Economic Studies
ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
Regional Income Disparities in Indonesia:
Measurements, Convergence Process, and
Decentralisation
Andi Irawan
To cite this article: Andi Irawan (2015) Regional Income Disparities in Indonesia:
Measurements, Convergence Process, and Decentralisation, Bulletin of Indonesian Economic
Studies, 51:1, 148-149, DOI: 10.1080/00074918.2015.1023415
To link to this article: http://dx.doi.org/10.1080/00074918.2015.1023415
Published online: 30 Mar 2015.
Submit your article to this journal
Article views: 335
View related articles
View Crossmark data
Full Terms & Conditions of access and use can be found at
http://www.tandfonline.com/action/journalInformation?journalCode=cbie20
Download by: [Universitas Maritim Raja Ali Haji], [UNIVERSITAS MARITIM RA JA ALI HA JI
TANJUNGPINANG, KEPULAUAN RIAU]
Date: 17 January 2016, At: 23:08
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148
Abstracts of Doctoral Theses on the Indonesian Economy
This study also inds that the inability of institutional arrangements to adopt
PEM principles has undermined the eficiency of government intervention in the
health sector at the district level. Weak institutional arrangements in PEM have
had harmful effects on the size, allocation, and use of public health expenditure,
and have contributed to inequalities in health outcomes in Bengkulu province.
Such weaknesses include the absence of constructive political engagement; a
lack of policy clarity, consistency, affordability, and predictability; and low levels of transparency, comprehensiveness, integration, and accountability. District
governments also face severe ineficiencies in PEM, owing to delays in budget
approvals. The introduction of market-based practices in the PEM of the district
governments studied has not prevented potential opportunistic political behaviour. Policymakers have therefore failed to reduce or eliminate the costs of negotiating and enforcing political agreements in allocating public resources, since the
budget can be viewed as a contract.
These indings reinforce criticism that the applicability of the PEM technique
is country-speciic. Proper institutional arrangements that address an Indonesiaspeciic context are required for the success of PEM. The indings support the
view that using hierarchies as an alternative mode of governance is more appropriate than relying on markets, which cannot reduce transaction costs. The resultsoriented nature of the PEM approach makes it dificult to implement, owing to
serious measurement problems in the health service.
© 2015 Yefriza
http://dx.doi.org/10.1080/00074918.2015.1023414
Regional Income Disparities in Indonesia:
Measurements, Convergence Process, and Decentralisation
Andi Irawan ([email protected])
Accepted 2014, University of Illinois at Urbana-Champaign
The unifying theme of this dissertation is spatial inequality, driven by two primary motivations. First, spatial inequality can contribute to overall inequality
across households or among individuals. Second, spatial inequality can jeopardise the fabric of society, upsetting social and political stability. Regional disparities
have increasingly become the focus of policy and academic interests, especially in
a diverse society such as Indonesia, where geographic units often align with divisions in economic performance, political and cultural aspirations, language, and
religion, among others. This dissertation assesses spatial inequality and convergence dynamics across districts in East Java and studies the impact of Indonesia’s
2001 iscal decentralisation on regional income disparities across these districts.
East Java was chosen as a case study because of its economical and geopolitical
importance to Indonesia. In addition, East Java has been dubbed a case of ‘balanced development’, an assessment that this dissertation intends to re-examine.
By synthesising the approaches of sigma and beta convergences and distribution dynamics, and by employing a variety of methods, this dissertation inds an
increasing trend of inequality, as well as the strong presence of clubs convergence
with a slow and conditional catch-up process. The clusters of low-, medium-, and
Downloaded by [Universitas Maritim Raja Ali Haji], [UNIVERSITAS MARITIM RAJA ALI HAJI TANJUNGPINANG, KEPULAUAN RIAU] at 23:08 17 January 2016
Abstracts of Doctoral Theses on the Indonesian Economy
149
high-income districts are expected to remain. These indings offer an invitation
for scholars and policymakers to revisit the never-obsolete debate between a strategy of place-based prosperity and one of people-centered prosperity, as well as to
examine the speciic potential applications for East Java.
Indonesia’s 2001 iscal decentralisation attempted to promote equalisation by
addressing vertical and horizontal imbalances and by providing district governments with incentives for development. One important research question is
whether Indonesia’s decentralisation has delivered on its equity promise. Using
ixed-effects panel estimation, this dissertation seeks to determine whether income
disparities have reduced across districts, whether decentralisation has been an
inequality-reducing force, and how the districts’ level of development may have
inluenced the effect of decentralisation on inequality. The indings reveal that a
reduction in inequality is associated with greater decentralisation. However, the
impact of decentralisation on disparities across districts is affected by the districts’
level of development. Inequality may persist until Indonesian districts reach a
certain level of development, which seems to be out of reach for most.
Decentralisation has narrowed inequality between Indonesian districts, which
suggests that Indonesia should continue to decentralise. However, decentralisation should be seen as part of a broader development strategy in which the
ultimate objective is a higher level of development. Preserving and attracting economic activities should be the primary features of district governments’ economic
development plans. These efforts entail many other measures, such as (a) maintaining and improving the level and quality of infrastructure, and (b) reaching out
for cooperation with other districts to share best practices or the costs of certain
development projects, or to generate and exploit economies of scale.
© 2015 Andi Irawan
http://dx.doi.org/10.1080/00074918.2015.1023415
ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
Regional Income Disparities in Indonesia:
Measurements, Convergence Process, and
Decentralisation
Andi Irawan
To cite this article: Andi Irawan (2015) Regional Income Disparities in Indonesia:
Measurements, Convergence Process, and Decentralisation, Bulletin of Indonesian Economic
Studies, 51:1, 148-149, DOI: 10.1080/00074918.2015.1023415
To link to this article: http://dx.doi.org/10.1080/00074918.2015.1023415
Published online: 30 Mar 2015.
Submit your article to this journal
Article views: 335
View related articles
View Crossmark data
Full Terms & Conditions of access and use can be found at
http://www.tandfonline.com/action/journalInformation?journalCode=cbie20
Download by: [Universitas Maritim Raja Ali Haji], [UNIVERSITAS MARITIM RA JA ALI HA JI
TANJUNGPINANG, KEPULAUAN RIAU]
Date: 17 January 2016, At: 23:08
Downloaded by [Universitas Maritim Raja Ali Haji], [UNIVERSITAS MARITIM RAJA ALI HAJI TANJUNGPINANG, KEPULAUAN RIAU] at 23:08 17 January 2016
148
Abstracts of Doctoral Theses on the Indonesian Economy
This study also inds that the inability of institutional arrangements to adopt
PEM principles has undermined the eficiency of government intervention in the
health sector at the district level. Weak institutional arrangements in PEM have
had harmful effects on the size, allocation, and use of public health expenditure,
and have contributed to inequalities in health outcomes in Bengkulu province.
Such weaknesses include the absence of constructive political engagement; a
lack of policy clarity, consistency, affordability, and predictability; and low levels of transparency, comprehensiveness, integration, and accountability. District
governments also face severe ineficiencies in PEM, owing to delays in budget
approvals. The introduction of market-based practices in the PEM of the district
governments studied has not prevented potential opportunistic political behaviour. Policymakers have therefore failed to reduce or eliminate the costs of negotiating and enforcing political agreements in allocating public resources, since the
budget can be viewed as a contract.
These indings reinforce criticism that the applicability of the PEM technique
is country-speciic. Proper institutional arrangements that address an Indonesiaspeciic context are required for the success of PEM. The indings support the
view that using hierarchies as an alternative mode of governance is more appropriate than relying on markets, which cannot reduce transaction costs. The resultsoriented nature of the PEM approach makes it dificult to implement, owing to
serious measurement problems in the health service.
© 2015 Yefriza
http://dx.doi.org/10.1080/00074918.2015.1023414
Regional Income Disparities in Indonesia:
Measurements, Convergence Process, and Decentralisation
Andi Irawan ([email protected])
Accepted 2014, University of Illinois at Urbana-Champaign
The unifying theme of this dissertation is spatial inequality, driven by two primary motivations. First, spatial inequality can contribute to overall inequality
across households or among individuals. Second, spatial inequality can jeopardise the fabric of society, upsetting social and political stability. Regional disparities
have increasingly become the focus of policy and academic interests, especially in
a diverse society such as Indonesia, where geographic units often align with divisions in economic performance, political and cultural aspirations, language, and
religion, among others. This dissertation assesses spatial inequality and convergence dynamics across districts in East Java and studies the impact of Indonesia’s
2001 iscal decentralisation on regional income disparities across these districts.
East Java was chosen as a case study because of its economical and geopolitical
importance to Indonesia. In addition, East Java has been dubbed a case of ‘balanced development’, an assessment that this dissertation intends to re-examine.
By synthesising the approaches of sigma and beta convergences and distribution dynamics, and by employing a variety of methods, this dissertation inds an
increasing trend of inequality, as well as the strong presence of clubs convergence
with a slow and conditional catch-up process. The clusters of low-, medium-, and
Downloaded by [Universitas Maritim Raja Ali Haji], [UNIVERSITAS MARITIM RAJA ALI HAJI TANJUNGPINANG, KEPULAUAN RIAU] at 23:08 17 January 2016
Abstracts of Doctoral Theses on the Indonesian Economy
149
high-income districts are expected to remain. These indings offer an invitation
for scholars and policymakers to revisit the never-obsolete debate between a strategy of place-based prosperity and one of people-centered prosperity, as well as to
examine the speciic potential applications for East Java.
Indonesia’s 2001 iscal decentralisation attempted to promote equalisation by
addressing vertical and horizontal imbalances and by providing district governments with incentives for development. One important research question is
whether Indonesia’s decentralisation has delivered on its equity promise. Using
ixed-effects panel estimation, this dissertation seeks to determine whether income
disparities have reduced across districts, whether decentralisation has been an
inequality-reducing force, and how the districts’ level of development may have
inluenced the effect of decentralisation on inequality. The indings reveal that a
reduction in inequality is associated with greater decentralisation. However, the
impact of decentralisation on disparities across districts is affected by the districts’
level of development. Inequality may persist until Indonesian districts reach a
certain level of development, which seems to be out of reach for most.
Decentralisation has narrowed inequality between Indonesian districts, which
suggests that Indonesia should continue to decentralise. However, decentralisation should be seen as part of a broader development strategy in which the
ultimate objective is a higher level of development. Preserving and attracting economic activities should be the primary features of district governments’ economic
development plans. These efforts entail many other measures, such as (a) maintaining and improving the level and quality of infrastructure, and (b) reaching out
for cooperation with other districts to share best practices or the costs of certain
development projects, or to generate and exploit economies of scale.
© 2015 Andi Irawan
http://dx.doi.org/10.1080/00074918.2015.1023415