DOES THE LOCAL ECONOMIC GOVERNANCE IN INDONESIAPERFORM AN IMPROVEMENT?
Abstract
Governance has gone through radical changes over the last twenty five years. Seemingly, it became one of the important strategies, processes, methods and mechanisms in governing countries to achieve economic development goals. The objective of this paper is to observe the local economic governance dynamics in the case of districts/municipalities in Indonesia. First, the dynamics behavior of local governance over time is analyzed by visual inspection of their non-parametric density distribution. More deeply, we use Markov chains to predict a pattern of change in local economic governance toward its steady state. Based on comparison between 2007 and 2011 data delivered by Commission of Regional Autonomy Implementation Watch, we conclude that there is a high level of persistence in the relative position of local governance index, consistent with a low degree of mobility in the index distribution implying the implementation of governance in the districts/municipalities in Indonesia is weak enough. This finding implies that the local economic governance is a key to achieve sustainable regional economic growth in line with fiscal decentralization and regional autonomy.
Keywords : Local Economic Governance, Decentralization, Regional Economic Growth, Kernel Densities, Markov Chains
JEL Classification: H70, O43, O56
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References
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Bardhan, P., (1984), The Political Economy of Development in India. Oxford: Basil Blackwell.
Bates, R.H., (2001), Prosperity and Violence: The Political Economy of Development, New York:W.W. Norton.
Bhagwati, J.N., (1982), Directly Unproductive, Profit-Seeking (DUP) Activities, Journal of Political Economy, 90(5): 988-1002.
Cali, M., (2009), Do Effective State Business Relations Matter for Economic Growth? Evidence from Indian States?, Manchester, Research Program Consortium for Improving Institutions for Pro-Poor Growth (IPPG).
Chibba, M., (2009), Governance and Development, the Current Role of Theory, Policy and Practice, World Economics, Vol. 10, No. 2, April-June 2009: 78-108.
Colander, D.C. (Ed.), (1984), Neoclassical Political Economy: The Analysis of Rent-Seeking and DUP Activities, Cambridge Massachusetts: Ballinger Publishing Co.
Djankov, S., R. Porta, F. Silanes. dan A. Shleifer, (2002), The Regulation of Entry, Quarterly Journal of Economics, 117: 1-37.
Di Tella, R. dan E. Schargrodsky, (2003), The Role of Wages and Auditing during a Crackdown on Corruption in the City of Buenos Aires?, Journal of Law and Economics,46: 269-92.
Di Tella, R., S. Galiani, dan E. Schargrodsky, (2007), The Formation of Beliefs: Evidence from the Allocation of Land Titles to Squatters?, The Quarterly Journal of Economics, Vol. 122, No. 1.
Dixit, A.K., (2001), On Modes of Economic Governance?, CESifo Working Paper Series No.589.
Field, E., (2007), Entitled to Work: Urban Tenure Security and Labor Supply in Peru, The Quarterly Journal of Economics, Vol. 122, No. 4 (November): 1561-602.
Fisman, R., (2001), Estimating the Value of Political Connections, American Economic Review, 91(4): 1095v102.
Galiani, S. dan E. Schargrodsky, (2010), Property Rights for the Poor: Effects of Land Titling,Journal of Public Economics,94: 700-29.
Golden, M. dan L. Picci, (2005), Proposal for a New Measure of Corruption, Illustrated with Italian Data, Economics and Politics, 17: 37-75.
Hariyoga, H., (2009), The Determining Factors of Local Economic Performance, Challenges,and Obstacles, paper presented in the Focus Group Discussion in the Coordinating Ministry of Economy, Jakarta, November 12.
Helpman, E., (2008), Institutions and Economic Performance, Cambridge, Harvard University Press.
Istiandari R., (2009),Local Economic Governance and Social Welfare in Indonesia, KPPOD Brief, May-June.
Kaufmann, D., A. Kraay, danP. Zoido-Lobatón, (1999), ˜Governance Matters, World Bank Policy Working Paper No. 2196. World Bank: Washington.
Kaufmann, D., A. Kraay, danP. Zoido-Lobaton, (2000), ˜Governance Matters: From Measurement to Action, Finance and Development, 37(2), Washington DC: International Monetary Fund.
Kaufmann, D., A. Kraay, danM. Mastruzzi, (2005), Governance Matters IV: Governance Indicatorsfor 1996-2004, World Bank Policy Research Working Paper.
Knack, S. dan P. Keefer, (1995), Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Measures?, Economics and Politics,7(3): 207-27.
Knack, S. dan P. Keefer, (1997), Why Don»t Poor Countries Catch Up?, A Cross-National Test of an Institutional Explanation?, Economic Inquiry,35(3): 590-602.
Knack, S., (Ed.), (2003), Democracy, Governance, and Growth, Ann Arbor: The University of Michigan Press.
Kong, T., (2011), Governance Quality and Economic Growth, College of Business and Economics, Australian National University Working Paper No: 537, January. KPPOD, (2011), KPPOD Brief, January- March 2011.
Krueger, A.O., (1974), The Political Economy of the Rent-Seeking Society, American Economic Review,64(3): 291-303.
Krugman, P., (1991a), Increasing Returns and Economic Geography, Journal of Political Economy, 99(3): 483-99.
Krugman, P., (1991b), Geography and Trade, MIT Press, Cambridge.
Kuncoro, H., (2005), The Impact of Intergovernmental Transfer on Fiscal Performance, Economic Growth, and Regional Disparity in Indonesia?, Unpublished Dissertation, Universitas Gadjah Mada, Yogyakarta.
Kuncoro, H. and Suryanto, (2003), Regional Economic Growth Dynamics in Indonesia, The Journal of Accounting, Management, and Economics Research, Faculty of Economics UTY, Yogyakarta, Vol. 3, No. 2, September: 169-85.
Laeven, L., and C. Woodruff, (2007), The Quality of the Legal System, Firm Ownership, and Firm Size, Review of Economics and Statistics,89.4: 601-14.
Lal, D. and H. Myint, (1996), The Political Economy of Poverty, Equity, and Growth: A Comparative Study, Oxford: Clarendon Press.
Lewis, B., (2003), Tax and Charge Creation by Regional Governments under Fiscal Decentralisation: Estimates and Explanations?, Bulletin of Indonesian Economic Studies, 39(2).
Lucas, R., (1988), On the Mechanics of Economic Development, Journal of Monetary Economics, 22: 3-42.
Mahi, B.R., (2009), Geographical Concentration of Industries: The Impact of Governance and Investment Climate in Region?, paper presented in the Focus Group Discussion in the Coordinating Ministry of Economy, Jakarta, November 12.
Malesky, E. dan K. Samphantharak, (2008), Predictable Corruption and Investment Strategy: Evidence from a Natural Experiment and Survey of Cambodian Entrepreneurs?, Quarterly Journal of Political Science 3, 3: 227-67.
Malesky, E. dan M. Taussig, (2009), Out of the Gray: The Impact of Provincial Institutions on Business Formalization in Vietnam?, Journal of East Asian Studies, 9: 249-90.
McCulloch, N. dan E. Malesky, (2010), Does Better Local Government Governance Induce Local Economic Growth Performance in Indonesia?, working paper, KPPOD, Institute of Development Studies, and AusAid.
Mengistu, A.A. dan B.K. Adhikary, (2011), Does Good Governance Matter for FDI Inflows? Evidence from Asian Economies, Asia Pacific Business Review, Volume 17, Issue 3: 281-99.
North, D.C., (1981), Structure and Change in Economic History, New York, W.W. Norton.
North, D.C., (1990), Institutions, Institutional Change, and Economic Performance, Cambridge University Press, UK.
Olken, B.A., (2007), Monitoring Corruption: Evidence from a Field Experiment in Indonesia, Journal of Political Economy, 115, (2): 200-49.
Pambudhi, A., (2009), Government Governance and Economic Growth, paper presented in the Focus Group Discussion in the Coordinating Ministry of Economy, Jakarta, November 12.
Pepinsky, T.C. dan M.M. Wihardja, (2009), Decentralization and Economic Performance in Indonesia, Paper presented at the 2009 Annual Meeting of the American Political Science Association. Chicago.
Posner, R.A., (1975), The Social Costs of Monopoly and Regulation, Journal of Political Economy, 83(4): 807-27.
Quibria, M.G., (2006), Does Governance Matter? Yes, No, or Maybe: Some Evidence from Developing Asia, Kyklos, 59(1): 99-114.
Romer, P., (1986), Increasing Returns and Long Run Growth, Journal of Political Economy, 94: 1002-37.
Romer, P., (1990), Endogenous Technological Change?, Journal of Political Economy, 98: S71- S102.
Romer, D., (1996), Advanced Macroeconomics, McGraw-Hill Co., Inc., New York.
Sebayang, D. dan H. Kuncoro, (2011), The Role of Business Development Service in Development Small Medium Enterprise Center in Order to Build a Regional Economic Partnership?, paper presented in the International Conference Political Economy of Trade Liberalization in East Asia, Faculty of Economics and Business, Universitas Brawijaya, Malang, November, 24-25.
Silverman, B.W., (1986), Density Estimation for Statistics and Data Analysis, Chapman and Hall, New York.
Thomas, M.A., (2007), What Do the Worldwide Governance Indicators Measure?, European Journal of Development Research, 22 (1): 31-54.
Wei, S.J., (2000), Local Corruption and Global Capital Flows, Brookings Papers on Economic Activity (2): 303-54.
Weiss, T.G., (2005), Governance, Good Governance, and Global Governance: Conceptual and Actual Challenges, in R. Wilkinson, (Ed.), the Global Governance Reader, New York:Routledge.
Williamson, O., (1975), Markets and Hierarchies, Analysis and Antitrust Implications: A Study in the Economics of Internal Organization, New York: Free Press.
Williamson, O., (1985), The Economic Institutions of Capitalism: Firms, Markets, and Relational Contracting, New York: Free Press.
World Bank, (2005), Governance Indicators: 1996-2004,Washington DC: World Bank.
Alt, J.E. dan K.A. Shepsle, (Eds.), (1990), Perspectives on Positive Political Economy, Cambridge:Cambridge University Press.
Amemiya, T., (1985), Advanced Econometrics, Basil Blackwell, Oxford.
Ardagna, S., danA. Lusardi, (2008), Explaining International Differences in Entrepreneurship:The Role of Individual Characteristics and Regulatory Constraints?, NBER Working Paper Series, No. 14012, May.
Banerjee, A. dan L. Iyer, (2005), History, Institutions, and Economic Performance: the Legacy of Colonial Land Tenure Systems in India?, American Economic Review, 95(4), 1190-213.
Bardhan, P., (1984), The Political Economy of Development in India. Oxford: Basil Blackwell.
Bates, R.H., (2001), Prosperity and Violence: The Political Economy of Development, New York:W.W. Norton.
Bhagwati, J.N., (1982), Directly Unproductive, Profit-Seeking (DUP) Activities, Journal of Political Economy, 90(5): 988-1002.
Cali, M., (2009), Do Effective State Business Relations Matter for Economic Growth? Evidence from Indian States?, Manchester, Research Program Consortium for Improving Institutions for Pro-Poor Growth (IPPG).
Chibba, M., (2009), Governance and Development, the Current Role of Theory, Policy and Practice, World Economics, Vol. 10, No. 2, April-June 2009: 78-108.
Colander, D.C. (Ed.), (1984), Neoclassical Political Economy: The Analysis of Rent-Seeking and DUP Activities, Cambridge Massachusetts: Ballinger Publishing Co.
Djankov, S., R. Porta, F. Silanes. dan A. Shleifer, (2002), The Regulation of Entry, Quarterly Journal of Economics, 117: 1-37.
Di Tella, R. dan E. Schargrodsky, (2003), The Role of Wages and Auditing during a Crackdown on Corruption in the City of Buenos Aires?, Journal of Law and Economics,46: 269-92.
Di Tella, R., S. Galiani, dan E. Schargrodsky, (2007), The Formation of Beliefs: Evidence from the Allocation of Land Titles to Squatters?, The Quarterly Journal of Economics, Vol. 122, No. 1.
Dixit, A.K., (2001), On Modes of Economic Governance?, CESifo Working Paper Series No.589.
Field, E., (2007), Entitled to Work: Urban Tenure Security and Labor Supply in Peru, The Quarterly Journal of Economics, Vol. 122, No. 4 (November): 1561-602.
Fisman, R., (2001), Estimating the Value of Political Connections, American Economic Review, 91(4): 1095v102.
Galiani, S. dan E. Schargrodsky, (2010), Property Rights for the Poor: Effects of Land Titling,Journal of Public Economics,94: 700-29.
Golden, M. dan L. Picci, (2005), Proposal for a New Measure of Corruption, Illustrated with Italian Data, Economics and Politics, 17: 37-75.
Hariyoga, H., (2009), The Determining Factors of Local Economic Performance, Challenges,and Obstacles, paper presented in the Focus Group Discussion in the Coordinating Ministry of Economy, Jakarta, November 12.
Helpman, E., (2008), Institutions and Economic Performance, Cambridge, Harvard University Press.
Istiandari R., (2009),Local Economic Governance and Social Welfare in Indonesia, KPPOD Brief, May-June.
Kaufmann, D., A. Kraay, danP. Zoido-Lobatón, (1999), ˜Governance Matters, World Bank Policy Working Paper No. 2196. World Bank: Washington.
Kaufmann, D., A. Kraay, danP. Zoido-Lobaton, (2000), ˜Governance Matters: From Measurement to Action, Finance and Development, 37(2), Washington DC: International Monetary Fund.
Kaufmann, D., A. Kraay, danM. Mastruzzi, (2005), Governance Matters IV: Governance Indicatorsfor 1996-2004, World Bank Policy Research Working Paper.
Knack, S. dan P. Keefer, (1995), Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Measures?, Economics and Politics,7(3): 207-27.
Knack, S. dan P. Keefer, (1997), Why Don»t Poor Countries Catch Up?, A Cross-National Test of an Institutional Explanation?, Economic Inquiry,35(3): 590-602.
Knack, S., (Ed.), (2003), Democracy, Governance, and Growth, Ann Arbor: The University of Michigan Press.
Kong, T., (2011), Governance Quality and Economic Growth, College of Business and Economics, Australian National University Working Paper No: 537, January. KPPOD, (2011), KPPOD Brief, January- March 2011.
Krueger, A.O., (1974), The Political Economy of the Rent-Seeking Society, American Economic Review,64(3): 291-303.
Krugman, P., (1991a), Increasing Returns and Economic Geography, Journal of Political Economy, 99(3): 483-99.
Krugman, P., (1991b), Geography and Trade, MIT Press, Cambridge.
Kuncoro, H., (2005), The Impact of Intergovernmental Transfer on Fiscal Performance, Economic Growth, and Regional Disparity in Indonesia?, Unpublished Dissertation, Universitas Gadjah Mada, Yogyakarta.
Kuncoro, H. and Suryanto, (2003), Regional Economic Growth Dynamics in Indonesia, The Journal of Accounting, Management, and Economics Research, Faculty of Economics UTY, Yogyakarta, Vol. 3, No. 2, September: 169-85.
Laeven, L., and C. Woodruff, (2007), The Quality of the Legal System, Firm Ownership, and Firm Size, Review of Economics and Statistics,89.4: 601-14.
Lal, D. and H. Myint, (1996), The Political Economy of Poverty, Equity, and Growth: A Comparative Study, Oxford: Clarendon Press.
Lewis, B., (2003), Tax and Charge Creation by Regional Governments under Fiscal Decentralisation: Estimates and Explanations?, Bulletin of Indonesian Economic Studies, 39(2).
Lucas, R., (1988), On the Mechanics of Economic Development, Journal of Monetary Economics, 22: 3-42.
Mahi, B.R., (2009), Geographical Concentration of Industries: The Impact of Governance and Investment Climate in Region?, paper presented in the Focus Group Discussion in the Coordinating Ministry of Economy, Jakarta, November 12.
Malesky, E. dan K. Samphantharak, (2008), Predictable Corruption and Investment Strategy: Evidence from a Natural Experiment and Survey of Cambodian Entrepreneurs?, Quarterly Journal of Political Science 3, 3: 227-67.
Malesky, E. dan M. Taussig, (2009), Out of the Gray: The Impact of Provincial Institutions on Business Formalization in Vietnam?, Journal of East Asian Studies, 9: 249-90.
McCulloch, N. dan E. Malesky, (2010), Does Better Local Government Governance Induce Local Economic Growth Performance in Indonesia?, working paper, KPPOD, Institute of Development Studies, and AusAid.
Mengistu, A.A. dan B.K. Adhikary, (2011), Does Good Governance Matter for FDI Inflows? Evidence from Asian Economies, Asia Pacific Business Review, Volume 17, Issue 3: 281-99.
North, D.C., (1981), Structure and Change in Economic History, New York, W.W. Norton.
North, D.C., (1990), Institutions, Institutional Change, and Economic Performance, Cambridge University Press, UK.
Olken, B.A., (2007), Monitoring Corruption: Evidence from a Field Experiment in Indonesia, Journal of Political Economy, 115, (2): 200-49.
Pambudhi, A., (2009), Government Governance and Economic Growth, paper presented in the Focus Group Discussion in the Coordinating Ministry of Economy, Jakarta, November 12.
Pepinsky, T.C. dan M.M. Wihardja, (2009), Decentralization and Economic Performance in Indonesia, Paper presented at the 2009 Annual Meeting of the American Political Science Association. Chicago.
Posner, R.A., (1975), The Social Costs of Monopoly and Regulation, Journal of Political Economy, 83(4): 807-27.
Quibria, M.G., (2006), Does Governance Matter? Yes, No, or Maybe: Some Evidence from Developing Asia, Kyklos, 59(1): 99-114.
Romer, P., (1986), Increasing Returns and Long Run Growth, Journal of Political Economy, 94: 1002-37.
Romer, P., (1990), Endogenous Technological Change?, Journal of Political Economy, 98: S71- S102.
Romer, D., (1996), Advanced Macroeconomics, McGraw-Hill Co., Inc., New York.
Sebayang, D. dan H. Kuncoro, (2011), The Role of Business Development Service in Development Small Medium Enterprise Center in Order to Build a Regional Economic Partnership?, paper presented in the International Conference Political Economy of Trade Liberalization in East Asia, Faculty of Economics and Business, Universitas Brawijaya, Malang, November, 24-25.
Silverman, B.W., (1986), Density Estimation for Statistics and Data Analysis, Chapman and Hall, New York.
Thomas, M.A., (2007), What Do the Worldwide Governance Indicators Measure?, European Journal of Development Research, 22 (1): 31-54.
Wei, S.J., (2000), Local Corruption and Global Capital Flows, Brookings Papers on Economic Activity (2): 303-54.
Weiss, T.G., (2005), Governance, Good Governance, and Global Governance: Conceptual and Actual Challenges, in R. Wilkinson, (Ed.), the Global Governance Reader, New York:Routledge.
Williamson, O., (1975), Markets and Hierarchies, Analysis and Antitrust Implications: A Study in the Economics of Internal Organization, New York: Free Press.
Williamson, O., (1985), The Economic Institutions of Capitalism: Firms, Markets, and Relational Contracting, New York: Free Press.
World Bank, (2005), Governance Indicators: 1996-2004,Washington DC: World Bank.
Published
2012-10-03
How to Cite
Kuncoro, H. (2012). DOES THE LOCAL ECONOMIC GOVERNANCE IN INDONESIAPERFORM AN IMPROVEMENT?. Buletin Ekonomi Moneter Dan Perbankan, 15(1), 83-106. https://doi.org/10.21098/bemp.v15i1.417
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Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
