Decentralization & Quality of Local Governance in Indonesia

Research Question
• How does the impact of decentralization on local governance quality in Indonesia, especially at village level?

Indonesia “Big Bang” Decentralization Reform – History • Economic. social and political crisis 1997/98 • Severe inter-regional inequalities • A threatened national unity East Timor independence in 1999 • June 1999: first free and fair elections (legislative) • August 1999: Law 22/1999 and Law 25/1999 passed • Fully implemented in 2001 .

Indonesia “Big Bang” Decentralization Reform – Dimension • Fiscal (more on spending than expenditure) • Administrative (function) • Political (local election) Local council & district head  First direct election in 2005 .

Imbalanced Fiscal Decentralization Source: Eckardt & Shah (2006) based on data of 294 Indonesia’s local governments in 2005 .

Source: Akita and Subkhan (2004) .

Source: Akita and Subkhan (2004) .

What have been done • Growth (Pepinsky & Wihardja 2011) --> Neutral .

Simatupang 2009. 2011. Skoufias et al.) • Inter-jurisdictional competition (del Granado et al. 2009. 2010. education and infrastructure – – – – Improvement in outcome and deliveries/availability Responsiveness and preference matching increased No evidence in local capture Fiscal decentralization matters more than political decentralization .What have been done (cont. Sjahrir & KisKastos 2011)  health. 2008 – Yardstick competition and expenditure spillover effect – Not tax competition • Public goods and service provision (Chowdury et al.

What have been done (cont.) • Corruption (Henderson & Kuncoro. 2011)Politics matters . 2004.

However • Most study is using district level data • Governance and political economy aspects is under-researched .

Suryadarma 2012) .Why governance? • The puzzle behind public spending & outcome – Cross country (Rajkumar & Swaroop 2008) – Indonesia (Sumarto et al 2004.

Suryadarma 2012) • Definition  “the institution by which authority is exercised and public resource are managed.” (de Mello & Barenstein 2001) .Why governance? • The puzzle behind public spending & outcome – Cross country (Rajkumar & Swaroop 2008) – Indonesia (Sumarto et al 2004...

Why governance? (cont. bureaucratic quality.) • Measurement – World Bank voice & accountability. rule of law. government effectiveness. . regulatory quality. – Political Risk Services Group corruption. control of corruption. political stability. rule of law. risk of expropriation of property.

Why village? • Policy planning and implementation – Ex: Poverty program • Targeting • Disbursement • Unique nature of village governance in Indonesia – Urban village (Kelurahan)  Appointed Leader – Rural village (Desa)  Elected leader .

Appointed Leader – Mu & Zhang (2011)  public resource distribution • Election and accountability – Martinez-Bravo et al (2011) policy change in favour of voter preference re-election incentive • Leaders’ characteristics – More educated leaders generate higher growth (Besley 2011) .Related works • Elected vs.

. • 4 waves: – IFLS1 (1993). IFLS4(2007). IFLS2(1997). 312 communities in rural and urban. IFLS1  7. • • • • • • Representing 83% of the population in 1997. • A longitudinal socioeconomic and health survey.Data • Indonesia Family Life Survey (IFLS).000 individuals. Re-contact rate above 90% in each wave. Individual  household  community. 13 provinces from 27 provinces in 1997.224 households and 22. IFLS3(2000).

Descriptive Statistics .

Village leader selection methods 1997/2007 .

Village Fiscal Autonomy .

Corruption change 2000/07 .

• X = a group control variables. Δ FA = change in fiscal autonomy. PE = a group of political economy variables (voter behaviour/characteristics and leader education). PE. X) • • • • Δ GQ = change in governance quality. POV. Δ FA. Δ LSM = change in leader selection method. . • POV = initial poverty rate.Empirical Model Δ GQ = f (Δ LSM.

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