UI204

Development Economics

Transcript: English
Week 1: Introduction, History, Theories & Methods, and
Patterns of Development

Video 1: Why Development Economics?

Video 2: Importance of History
Video 3: Methodologies & Approaches
Video 4 Patterns of Development
Video 5: International Relations
Video 6: Semester Tour

Video 1: Why Development Economics?

Welcome to the course on Development Economics. In this class we will have a combinations
of the online classes as well as the regular class. The first thing that people always ask in any
topic is really why, why we should study development economics.

One of the often quoted reason is people trying to understand why there are different
economic performance between countries, so why there are developed countries, as well as
developing countries, and also why there are middle income countries. So that is one of the
basic questions that many would like to understand. And course on development economics
can highlight that kind of questions.

Another reason why people want to study development economics is because of the
implications of that growth on a number of socio-economic issues. For example, on the income
inequality, we all know that the last couple of years, despite the fact that economic growth
may perform well, but the income inequality has been worsening in many parts of the world.
And this is happening not only in developing countries but also in developed countries. So the
income inequality is another phenomena that leads to many people and analyst would like to
study development economics.

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Now related to that income inequality is of course the issue of poverty. Because despite the
fact that the number of poor around the world has been declining, but that total number is still
huge. And in fact, there are cases where the number of poor increasing. For example, at the
extreme case, when you have a crisis, when you have an economic crisis, financial crisis, often
cases show that the number of poor is increasing. So that is another phenomenon that people
would like to understand why this is happening. And of course eventually one would like to
understand how to prevent that phenomenon from happening.

If we look at from periods to periods, of course the issue of development has been changing, it
has been evolving. Now the latest one, the latest sort of issues on development, is what they
call the Sustainable Development Goals, SDG. We all know that for the last couple of years,
until last year, the world’s set of goals is called the MDG. Beginning in 2016, early 2016, the
United Nations sort of introduce the concept of Sustainable Development Goals. Now the
concept of sustainable development itself is not new. It’s, you know, a concept that has been
known for a number of years. And as a matter of fact, in this class, we will have a special session
on what is really sustainable development and what are the aspects in the Sustainable
Development Goals.

But in this class, we will focus more on the people- oriented development. So, growth is
necessary but it’s not the goal by in itself. So growth is only a means to achieve a set of
development goals. In other words, the goal of development is really to create an enabling
environment for people to enjoy long, healthy, productive, and creative life. So that is really
more of the purpose of development, not so much the economic growth. To achieve that, they
may require economic growth. So in other words, economic growth is not the goal itself.

But in development economics class, usually people are more interested with the policy
implications. Of course it’s important to understand the phenomenal development, but it’s
also important to understand what kind of policies that may mitigate undesirable outcome in
development. But there are two types of policy implications. One is a standard policy
implication, in the sense that if, for example, a country would like to achieve higher growth,
there maybe some negative externalities , some repercussions, and that negative externalities
may be mitigated by what I call the compensating policies. For example, providing subsidies
to the low and medium income groups, or giving a tax cuts. So those are examples of the

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mitigating policies. So, in this class we will discuss about two types of policies. One is the
compensating policies, and the other one is more integrated policies.

Although this is a class on development economics, but we all know that development
phenomena is basically multidimensional phenomena. So in other words, we cannot
approach the development phenomena only from the dicipline of economics. We don’t want
to sort of neglect the importance of non economic factors, be it institutional factors, cultural
factors, history is also very very important. So we will discuss, during this semester, all the
development issues from the perspective of not just economics but also from the non-
economic factors.

Video 2: Importance of History

There are a number of reasons to understand why different countries have different growth,
and that explains why you have developed countries and you have a developing countries.
History is very important to understand this. Now, there has been sort of many arguments
trying to explain this. A book, in fact it’s a “Gun, Germs, and Steel”, arguing that basically, it’s
all related to the fact that the Eurasians was able to colonize many parts of the world during
that period through their weapons, superior weapons, and this is what they call the “guns”, as
well as the “germs”, and “germs” refers to the fact that Eurasians were used to the
environment and the diseases that they came from where they came from. And then when they
brought the diseases into the colonized areas, the local people were not able to defend
themselves because of their weak immunity. As a result, the colonizer’s population weaken or
even declined in terms of the number, and that was made possible for the colonizers to sort of
colonize those regions. And the last one is the “steel”, because of the durable transport means
that was used by the Eurasian during that time. So “Gun, Germs, and Steel” is one of the books
that I recommend you to read in order to understand these three.

Now another book, which is also a very sort of powerful in terms of explaining what is the
historical trend in terms of the economic performance, is related to the institution. So the
book, titled “Why Nations Fail?” refers to the fact that if the colonizers colonize a certain areas,
and they decided to stay there, example being Australia, United States, Canada, because you
know, these are all countries that was formed by the migrants, by the invaders basically at that
time, and they decided to stay then they bring with them the favorable and proper institution,

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and this is called the “inclusive institutions”. But if the colonizer came to the, to certain areas,
and they decided not to stay, instead what they did is just to extract the natural resources,
spices, like in the case of Indonesia especially in the eastern part of Indonesia, where the
Portuguese and the Dutch took out a lot of spices from that part of the world, that part of
Indonesia, then the kind of institution that they left is called the “extractive institution”. Now,
those countries with extractive institutions usually have more difficulty to prosper. The
development process will be less, sort of, smooth compared to those countries that have the
inclusive institutions.

So, those two books sort of summarize the importance of history to explain the trend of the
development around the world. Now, you can imagine that there are three mountains. The
first mountain, I would say started in the year 1000 until mid 1800. And during that period,
basically Asia was dominant. I’m referring to the growth of the economy. The highest growth
of the economy during that period was really taking place in Asia. Of course during that period,
China was really the dominant part. But then, in the mid 1800, that was the “Industrial
Revolutions”, the Britain, so the European, the Western Europe, dominates. So that’s the
second mountain. That’s the mountain in the middle. And that lasted until I would say the First
World War or Second World War. And since that, the third mountain was really the mountain
of the United States because we know the US economy was dominant during that period.

Now what is interesting is that I would say beginning in the year 2010, there is a potential of a
new mountain coming, and that is the Asian mountain. Of course we know the story of China.
China is the elephant in the room, because they’re really growing very fast, growing double
digit for more than one decade. And that potentially can lead to become the dominant
economy in the world. So, the question here is that will the last mountain be dominated again
by Asia like what happened during the period of 1000 to mid 1800. That is a question mark,
depending on whom you talk to. But definitely there are some signs showing that Asia has the
potential to become the next mountain, the fourth mountain.

Video 3: Methodologies & Approaches

Like in the many other economic diciplines, basically there are 2 approaches. One refers to the
sort of importance of quantitative approach, statistical approach, and so forth. But the others
are more on the descriptive approach. Now “John Maynard Keynes” is among those who really

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have a great distrust on the use of quantitative approach and statistical approach, whereas
economists like Jan Tienbergen was really the one who believe that the quantitative approach
is very important and very useful to explain the development phenomena. Now, but if we look
at the methodologies and theory in development economics, basically it has evolved from
periods to periods. We know, for example, after the Second World War, most of the economic
theories and models and methodologies during that period was focusing on growth, naturally
so because there’s so many countries damaged by the war. They need to sort of revive their
growth. And as a results, many of the countries have the dbjective, evelopment objectives, to
achieve higher growth. And consequently, economic theories and methods were trying to
support that kind of objectives. And that is the reasons why the kind of data that was really
developed during that period, that was really used quite extensively is the national income
account, in a way one can say that “that was really the period where the national income
account started to be used very extensively”.

But as I said, over different periods, the development objectives also changes. You know, the
fact that many countries were able to achieve higher growth but then at the same time there’s
a income inequality, at the same time there’s also deficits, both internal deficit, that is the
fiscal deficit, as well as external deficits, like Balance of Payments deficit and so forth. That
brought economists to come up with an alternative theories on internal and external balance
and so forth. And as I said earlier, when there is also increase in income inequality, economists
would like to sort of hypothesize about what caused the income inequality, how to mitigate
this income inequality. And as a results, the kind of data required is also different. National
income account cannot explain the phenomena of income inequality, let alone poverty. So
that is the reasons why economists started to develop their own framework, their own kind of
information and data. One example, which is widely used, is called the “Social Accounting
Matrix”, because in the Social Accounting Matrix, basically they can combine the real sector
and the income of the different households, i.e. the income inequality and so forth.

But then, over the years also there is an evolutions in terms of development objective from the
fact that the environmental condition has been worsening in many parts of the world. And as
a result, development economists would like to incorporate the goal of achieving a certain
environmental standard into their analysis. And again, consequently, the kind of data required
is also changing and so forth. And, I would say the last two decades, another growing
importance is the financial sector, especially with the free flow of capital between countries

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and so on. That leads to the questions of what is the impact of this capital inflows on a set of
yous, including poverty, income inequality, of course, impact on growth, and so forth.

Now, while the impact of those capital flows on macro indicators like growth, inflation, export-
import relatively known, the impact of social indicators, development indicators like poverty,
income inequality, environment and so forth, is less known. Now, development economist
recently has been sort of interested to identify the impact of a particular shock or a particular
policies in a better way. And one of the approaches that they use is what is called the
“randomized experiment”. So basically what they do is they collect the number of the sample
or the population randomly, and then they split into two groups; one is the control group, and
the other one is the intervention group. And the intervention group are those groups that are
affected by a particular shock or a particular policies.

So when they do this, then they collect the data before the intervention and after the
intervention. So by doing this, basically development economists were able to identify what
are really the real impact of a particular policy shock or particular external shock. So in a way,
one can say that through the randomized experiment, one can really identify the questions of
with and without the policies, whereas if you don’t do the experiment, and you simply collect
the data before the policy and after the policy, then it’s called the “before and after”, and
naturally the with and without is better approach than the before and after approach.

Video 4: Patterns of Development

As the economy is growing, of course there are so many changes has been happening. Now,
economists call this as the “change in the patterns of development”. And the classical kind of
approach is by looking at different sectors. Now the so-called normal patterns of development
is that as your per capita income increasing, the share, not the absolute amount, but the share
of the primary sector should be declining, the share of the secondary sector, and most of the
secondary sector are the manufacturing sectors, are increasing, and the share of the services
or the tertiary sectors is also increasing. So this is the so-called “normal patterns of
development”, and there are two economists by the name of Canary and Cirquin, back in the
1970s, they collected data from many parts of the world, and they identify 27 variables, and
what they did was that those, based on those 27 variables, they see that the change in the
patterns of development that I mentioned a few seconds ago is also accompanied by the other

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27 variables, be it the number of money supply, the amount of money supply, the investment
level, the consumption level and so forth. So, in short, basically development economists
identify what is called the normal patterns of development.

Now, there is a footnote on this, because if we look at the case of many developing countries,
what constitute the services sector, which according to Canary-Cirquin, should increase under
the normal patterns of development. Unfortunately, in many developing countries, those
sectors are not the productive sectors. We’re talking about retail trade for example. In many
developing countries, you always have a “mom and pop shops”, you know, small shops and
so forth. And the number are increasing, that doesn’t mean it’s the good development pattern,
because what is more important is not really the share of the output of each sector. In this
case, the services sector is growing, but what is more important is that those sectors with
higher productivity should increase. Now, I guess the reasons why Canary-Cirquin back in
1970s used this pattern is because what they believe as the services sectors are the highly
productive services sectors. Now, as I indicated earlier, that’s not always the case in many
developing countries. So, what is more important is really how to increase the share of the
highly productive sectors.

Now, there has been study looking at the trend around the world of all these different sectors
and trying to identify whether or not there is a process of convergence. Process of convergence
means if you are poor countries, meaning your level of per capita income is low, if your growth
is higher, and then you compare with countries with high per capita income, whereas the
growth of that countries are relatively lower, so if you collect the data around the world, what
you have is a negative slope trend. So, in other words, imagine on the X axis, if you are on the
left side of the X axis, basically you are low income countries. But your growth, which is in the
Y axis, it’s very high. So, imagine you are in the top on the left side of the curve. But then, if you
are rich countries, you are on the right side of the X axis, but your growth is slow, so basically
you are low. So if you collect all these data, and if there is a process of convergence, then you
expect that there will be a negative slope kind of pattern.

Now, some economists trying to collect the data around the world. And guess what? They
didn’t find that there is a clear convergence, meaning that they didn’t find the case where
developing or poor countries are growing always faster than the developed countries or the
advanced economies. But when they go by sectors, they found one, and that is not measured

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in terms of the growth of per capita income. Instead, they measured in terms of the
productivity. So, the question move from whether or not there is a convergence in terms of the
per capita income to whether or not there is a convergence in the productivity. And the answer
to the second question is that there is a convergence on productivity only for one sector, and
that sector is manufacturing sector.

So, in other words, one can argue that if a country would like to sort of participate in this
convergence process, meaning that they want to have a higher growth, if their level of the
productivity is still low, then manufacturing sector is the answer. At least this is based on the
empirical data from many countries around the world.

What is the health condition? Because as your per capita income increase, it’s not only the
share of sectors increase or decrease, but what happen with the health conditions of the
population? As I mentioned at the beginning of the class is that this class is more on people
oriented development. So health.. is very very important. The second is on education. So
health and education are two topics which are very critical in the topic of development
economics and that is the reason why in this class we will have separate session on
understanding the health, the dynamic of the health factors, the dynamics of the education
factors, including the labor market. So, those are really issues that relate to the economic
structure and the patterns of development in development economics.

Video 5: International Relations

One has to remember that there is no countries living in a vacuum. So, in other words, the
international or external condition matters a lot. So, in this class, we also include the
importance of the international relation, and how it affects the development progress in
different parts of the world. Now, the argument is the following: We know that the world
economy has been getting more and more inter-dependent now. Now, because of that inter-
dependent, the degree of integration has been also increasing. Now that may create positive
impact. Take for example in the case of trade. When you have a free trade, you are able to
expand your market, not only for your final product, but also for your inputs, market for your
inputs and so on. But at the same time, that may also create some externalities.

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Now, some externalities are negative externalities. So, the question here is that how can a set
of countries minimize that potential negative externalities. So that is the argument for
international cooperation or international coordination. Now, if the international cooperation
and international coordination works well, works well means they are able to minimize or
ideally even eliminate any negative externalities of greater interdependence, then that will
increase the development capacity of individual country.

The bad news is that, unfortunately, until today, the so called international cooperation and
international coordination did not work very well. In some cases they worked well, but most
of the cases they didn’t work very well. And that explains, for example, why there’s always
financial crisis or economic crisis in different parts of the world in different, in different periods
of time. So one of the reasons why the international cooperation and international
coordination didn’t work is because of the lack of the so called global or international
governance. Everybody wants to cooperate, but everybody do not necesarrily agree on certain
things. And this is the reason why, despite the fact that there maybe some international
agreement on certain thing, let’s say on trade or environment and so on, that may not
necesarrily translate into a good coordination between countries. And that’s the reasons why
you still have, you know, disaster in terms of environmental aspect, disaster in terms of the
social aspect, as well as economic and financial aspect, like crisis.

Now, earlier, there was an argument that maybe the reason is because there are too many
countries to coordinate. So if there are 200 countries in the world, it’s so difficult to coordinate
200 countries. So that leads to the argument “maybe we can have the so called international
cooperation among a smaller number of countries. And that explains why there are regional-
international organizations. For example, for the case of development, you have a regional
development bank. In Africa, you have African Development Bank. In Latin America, you have
Inter-American Bank. In Asia, you have Asian Development Bank, and so forth. The whole idea
is that maybe the coordination is easier if you have to deal only with the smaller number of
countries, and if those smaller number of countries located in a particularly, you know, close
geographical proximity and so forth. But again, if we look at the trend so far, even with that
regional cooperation, even with those regional institutions, there are still a lot of cases that
shows the so called international cooperation and international coordination failed. So people
are always interested to find out what are the reason behind the failures. Well, of course there
are many reasons that one can explain, but one of the arguments that often been raised is also

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the fact that there are many countries who perform relatively well have their high degree of
complacencies. So they think, for example, if they are able to achieve high growth for five years
or six, seven years period, then everything is going well. And, as a results, they are not aware
that growing interdependence may lead to the negative externalities that I indicated earlier,
and as a results, because of their complacencies, eventually they were hit by major financial
crisis. I think the example what happened in 2008 in United States, and then in 2011, 2010 in
Europe, which, by the way, are the advanced economies, are clear evidence that if you are
complacent with what you have achieved, then you tend to have this kind of a shock, negative
shock.

So, to the extent that the development capacity of a country can be adversely affected by a
shock or a crisis, then it is really expected that the international organization can help member
countries to avoid that kind of crisis, meaning that they can help the member countries to
avoid from being complacent. But, there are some problems with this, because first of all, the
owners of the international organizations are the government. So when the government owns
the international organization, it is a little bit hard for the international organizations to
provide more objective and honest analysis. So that is the reasons why if we look at reports
produced by most of the international organizations tend to be in line with the government
report or the government ways, because the governments are the owners of the international
organizations. So that’s one problem.

The second problem is that to be able to sort of provide more objective and honest analysis,
you need some deep knowledge about the country’s conditions and situation, and some
international organizations have a sort of limited capacity to do that. And this is the reasons
why many countries usually using the international organizations only to provide financial
resources, not so much about knowledge. But at the same time, this is also the point where
people started to ask about the relevance of the international organizations, which only
functioning as a financial resource providers through loans, or all kinds of financial resources,
providing all kinds of financial resources. If we look at the experience of many countries, being
a member of the international organizations, ideally, they could take advantage, both in terms
of financial resources as well as in terms of the knowledge, especially the comparative
advantage of the international organization is that they can share the experience of other
countries. So, this is potentially the benefit of having the international organization, the

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potential benefit of a country involved in the international organization, again, to support their
development capacity.

But as I said earlier, unfortunately many of the international organizations do not have the
enough knowledge. Now, even in terms of the providing the financial resources, many of the
member countries, especially the emerging economies, they have the capacity to find an
alternative resources. First of all, they have more resources because, you know, many of the
emerging markets have been able to accumulate more, for example, foreign reserve over the
years. Or, they also have a saving. So, one is that member countries can have their own
resources. The second is that even if they do not use or do not have enough their own
resources, they can tap to resources from the international market because by being emerging
market, it’s not too difficult for them to tap alternative financial resources from the
international market.

On the one hand, if the international organization is not able to provide honest and objective
analysis that can help member countries to avoid to become complacent, on the other hand,
if the international organizations cannot provide enough funding enough resources. And
during this semester, we will discuss about this, we will sort of debate, because if we look at
the existing international organization, basically they are the product of the “Bretton Wood”
system. So, during this semester, we will discuss and debate about what kinds of “post-Bretton
Wood” system in the context of interrelation and in terms of its effect on development capacity
of individual country. So, that is really one issue that we will explore during the semester from
the perspective of the international relation and its link with the development capacity.

Video 6: Semester Tour

So if you look at the chart here, we already cover the history, the different level of income, as
well as different patterns of development. And I also indicated that these days, the goal that
has been agreed by all countries is reflected in the United Nations’ Sustainable Development
Goal, SDG. So, that’s the reasons why in this class, when we talk about development indicators,
we have to cover economic, social, and environment. So those triple bottom line, those three
goals, have to be achieved. Now, if we look at the actors, it’s also clear that in any countries,
there are always the big players, and there are the small players. Now, in terms of the economic
activity, the small and medium players, we just call the SMEs, Small Medium Enterprises, have

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their own dynamics, have their own plusses and the minuses and so on. So there will be a
session on the SME and how they get their financing, including how they can get the insurance
of their business and their financing. So that is another topic to be discussed during the
semester.

Now, if I were to identify what are really the key development challenges, especially in
developing countries, I would say institution. Because in many developing countries,
institutions are weak, governance are weak, not only in terms of the governance of the public
sector, but also the governance in the private sector, the corporate sectors, and so forth. And
that is the reason why during the semester we will also have a special session on institution.
Now, when we talk about institutions, we talk about formal institution, as well as informal
institution. Now, if you recall, when I discussed about the extractive and inclusive institutions,
we will have a special session, and using the case of eastern Indonesia. Because you know in
Indonesia, the eastern parts usually have a different kind of development patterns than the
western part. So, we will have a special session on the role of the social institution explaining
the development performance in eastern part of Indonesia.

And then we will have also session on the inequality and poverty, how to measure it, who are
the poor, and so forth. And how this can be incorporated in an integrated way, not only as an
outcome of a policy, let’s say growth policy and what’s the outcome on inequality and poverty,
but integrated part of the growth policies. So in other words, not necessarily pro-growth, pro-
poor growth, but poverty alleviation that also generate growth. So you can see the emphasis
is different here. If we are talking about pro-poor growth, the emphasis is still on growth,
whereas if we said reducing poverty that will generate growth, the emphasis is on poverty
reduction. So we will have a session on that.

Now, at the end of the day, one way to measure how all this reflected in the performance, the
development performance of a country, one indicator that is very useful to look at and to
identify is really the productivity. Because what is the point of you growing by 10%, or 11%, if
you use up so many inputs. And if the inputs are the natural resources, then basically you are
not meeting the goal of the Sustainable Development, because in the Sustainable
Development, the rule of environment, and in this case, preserving the natural resources, is
very important. But if you grow very high, 11-12%, but you use up a lot of natural resources,
then you suffer from natural resource depletion and so forth. So that’s the reasons why

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productivity is maybe one of the most important development indicators, because in

productivity, you achieve certain level of growth by using as minimum as possible the inputs,
be it natural resources, or labor. So there is a session during this semester focusing on this
productivity.

Now, for Indonesia, this is very relevant because we all know, back in the 2000, we shifted
dramatically from centralized system to the decentralized system. What are really the key
factors in that process of decentralization? Because if the decentralization is expected to be
something that will give a better outcome, better development outcomes, then people
question why we don’t see it, despite the fact that the decentralization has been taking place
since the year of 2000. So we will discuss about the factors that affect the performance post-
decentralization compared to the pre-decentralization.

So, I would like to invite you now to look at the chart here, and this give you the sort of week
by week topics that we are going to discuss during the semester. As you can see from the chart,
week 1 we will explore a number of issues as an introduction that is relevant to development
economics, for example we will answer the question why development economics? And I
mentioned already earlier about this set of reasons why people are interested to study
development economics. And then we also discuss about theories and models, some are
descriptive, some are quantitative approach, and we also discuss about the patterns of
development, the normal patterns of development. So that will be considered as the topics in
week 1. And then in week 2, we will focus on the concept of sustainable development, because
this is really the ongoing concept, agreed by countries around the world, achieving the SDG,
Sustainable Development Goal. So what are the elements, the important elements within the
Sustainable Development Goal. So that will be also part of the semester. In fact, we are going
to give it for two weeks class on this Sustainable Development Goals.

And then in the following week, week 4, 5, and 6, we will focus on the role of the small medium
enterprises, not only the dynamics of the SMEs, but also the funding, the microcredits, as well
as the insurance issues surrounding the funding of the SMEs. So that will be discussed either
two or during two or three meetings. And, if you look at the chart, the following week, we will
focus, we will start to discuss about the concept of poverty and income inequality. And then
that topics will be followed by similar kind of topic but with different approach, because the
poverty and income inequality that we were discussing, first was really focused more on the

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income or expenditure approach. Whereas when we talk about poverty, especially in some
remote areas, and we will use the case of eastern Indonesia, poverty is defined in a broader
sense, so we will have sort of a session during the semester, on the alternative measure or
alternative understanding about poverty by using the case study of eastern Indonesia. And the
next one we will discuss about the rule of health, because it’s not too difficult to understand
that the labor, or the employment role in the process of development is so critical but not only
in terms of number of labor or the number of employment, but also the quality. And when we
talk about the quality of the employment or the quality of the labor, health plays a very critical
role. But another factor that also plays a critical role in terms of the quality of the employment
and labor is education, and that is the reasons why in the subsequent week, we will discuss
about the role of education in the labor market.

Now the next topic that we will discuss during this semester is on infrastructure. I think it goes
without saying that the role of infrastructure in the whole process of development is very
critical. But in this class, we will sort of evaluate critically the link between infrastructure and
development, because if you recall, this class will argue very strongly that the goal of the
development is not growth, because there are too many misconception about the importance
of growth, and the role of infrastructure. So we will evaluate in a critical way the role of
infrastructure in the development.

The subsequent topic, which is not less important, is the role of institutions, because this is
really the topic that gives the flavor of multidicipline nature of development economics.
Because most analyses on development economics unfortunately are not really focusing on
the role of institution and yet in reality, especially in many developing countries, almost all
development processes that lead to certain performance are affected by the role of institution.
And when we talk about role of institutions, we will discuss about both, the formal institution
as well as informal institution, including the element of enforcement, because you know, you
may have a very strong and well defined institution, but when in practice, those well defined
institution is not enforced, then that may also affect the development performance. So overall,
we will argue that the outcome of the development or the development performance is not
only affected by policy but also by the role of the institution.

Now, by using the specific case of Indonesia, which is very very important to discuss about
decentralization because the country has gone through the period of decentralization in the

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early 2000. So during the semester, we will discuss about the role of institution in the
decentralization, how the process of decentralizations affect the ultimate outcomes in terms
of the people’s welfare. And we will argue during the semester that the role of institution in
this kind of question is so critical and eventually that will translate into a set of institutional
factors that we will highlight, one of them is really the role of people’s participation, another
one is the quality of local leaders and so forth. Now, international relation, why this is
important? Because no country live in vacuum. So no matter what the countries come up with
strategies or policies for their development, they cannot be free from the effect of what happen
outside the country, especially now that the world is getting more and more interconnected
so that the relationship between countries or between economies are getting more and more
complex. That is the reasons why during the semester we will discuss about the role of the
international relation and one of the issues that we brought up, as I indicated earlier, is that
people can ask the relevance of the existing international organizations. And we will debate
during the semester whether, you know, the so called “Bretton Woods” institution that we are
all having at this moment needs to be replaced by the post Bretton Woods institution.

So that’s basically the tour, if you wish, that we are going to go through during the semester.
And I hope you learn something from this class.

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