Local and regional dimensions in Indonesia’s social and economic development. A governance approach

Indonesian project leader: Prof. Ari Kuncoro, University of Indonesia Dutch project leader:  Prof. Henri de Groot, VU University Amsterdam and Prof. Ari Kuncoro, University of Indonesia

Indonesia recently witnessed dramatic changes in its economic, political and spatial landscape. In the economic context, it experienced very uneven economic development between regions, resulting in wide gaps in per capita income, most notably between urban and rural areas. Although our theoretical and empirical understanding of the generic forces that lead to the clustering of economic activity has improved, the specific mechanisms may vary considerably from one country or region to the next, depending in part on the institutional context within which they take place. In any case, such clustering gives rise to complex equity-efficiency trade-offs.

In terms of the political landscape, the fall of Suharto in 1998 marked the beginning of a transformation from an authoritarian regime towards a more democratic society. Increasingly, greater autonomy is being delegated to about 500 districts in various areas of governance, including public works, health, education, agriculture, industry, trade and environment. The quality of governance and the success with which democratic reform has been introduced at local levels vary widely. Consequently, it is not yet clear how further fragmentation of government decision-making power will affect the quality of governance across Indonesia and the associated economic development potential of regions.

At the spatial level, metropolitan areas in Indonesia are increasingly facing challenges due to rapid urbanization and motorization, which – in combination with insufficient investment in transport infrastructure – are linked to urban poverty and social exclusion. Major investments have been made in Bus Rapid Transit systems in Jakarta and Bandung in recent years. It is not yet clear how changes in the political landscape have affected transport investment decisions in rapidly growing metropolitan areas, and how investment in transport infrastructure or the lack of such investment have influenced urban poverty and social exclusion.

These developments are taking place against a background of growing consensus that the quality of governance is a key driver. Furthermore, there is increased awareness of the enhanced core-periphery structures that can result in a rapidly globalizing world. These developments raise complicated questions as regards fundamental equity-efficiency trade-offs. Developing robust policies in such a world is a complex matter, as exemplified by the recent passionate debate about place versus peoplebased policies. Such debates emphasize the fact that one-size-fits-all policies are an illusion and that policy impact and effectiveness are crucially dependent on the governance structures that are in place.

This project aims to enhance our understanding of the complex relationships between governance and economic and regional development in three closely interrelated PhD sub-projects. The first of these will focus on regional convergence patterns and the development of Indonesia’s position in the world economy from the macroperspective. The second will take a micro-perspective by using detailed micro-data on Indonesian firms and workers to enhance our understanding of the location and mobility behaviour of economic actors, and the size and nature of agglomeration externalities. The third project will take a case-study approach and focus on interregional and intra-regional transport infrastructure investments and their impact on urban poverty and social inclusion.