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Endowments, location or luck ? evaluating the determinants of sub-national growth in decentralized Indonesia

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  • McCulloch, Neil
  • Sjahrir, Bambang Suharnoko

Abstract

Indonesia's"big bang"decentralization in 2001 shifted much of the responsibility for local economic development from central government to district and city governments, which today number more than 450. But the performance of these districts has varied widely. This paper attempts to understand the determinants of sub-national (district/city) growth in Indonesia and map how these determinants have changed since before the 1997/98 economic crisis. The authors exploit a rich dataset that includes a wide range of district-level characteristics, including education, population, cultural, economic, and infrastructure variables, as well as a set of variables relating to distance, to try to explain growth. The analysis finds that, after accounting for differences in other variables, poorer districts tend to grow faster than better off districts. Similarly, there is evidence of spatial divergence, in the sense that districts tend to grow faster if their neighbors are growing quickly. However, the quality of the existing district-level data makes it difficult to identify whether endowments or factors related to distance are systematically associated with growth.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4769.

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Date of creation: 01 Nov 2008
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Handle: RePEc:wbk:wbrwps:4769

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Related research

Keywords: Achieving Shared Growth; Economic Growth; Economic Theory&Research; Inequality; Nutrition;

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References

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  1. Catin, Maurice & Luo, Xubei & Van Huffel, Christophe, 2005. "Openness, industrialization, and geographic concentration of activities in China," Policy Research Working Paper Series 3706, The World Bank.
  2. Robert J. Barro & Xavier Sala-i-Martin, 1991. "Convergence across States and Regions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 107-182.
  3. Erlangga Agustino Landiyanto & Rummaya & Wirya Wardaya, 2005. "Growth in East Java : Convergence or Divergence ?," GE, Growth, Math methods 0508005, EconWPA.
  4. Alisjahbana, Armida & Yusuf, Arief Anshory, 2003. "Assessing Indonesia's sustainable development: long-run trend, impact of the crisis, and adjustment during the recovery period," MPRA Paper 1736, University Library of Munich, Germany.
  5. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 223-51, April.
  6. World Bank, 2006. "Making the New Indonesia Work for the Poor," World Bank Other Operational Studies 8172, The World Bank.
  7. Alesina, Alberto F & Rodrik, Dani, 1991. "Distributive Politics and Economic Growth," CEPR Discussion Papers 565, C.E.P.R. Discussion Papers.
  8. Takahiro Akita, 2002. "Regional Income Inequality In Indonesia And The Initial Impact Of The Economic Crisis," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 38(2), pages 201-222.
  9. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  10. Easterly, William & Levine, Ross, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1203-50, November.
  11. Jorge Garcia Garcia & Lana Soelistianingsih, 1998. "Why Do Differences in Provincial Incomes Persist in Indonesia?," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 34(1), pages 95-120.
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Cited by:
  1. Neil McCulloch & Edmund Malesky, 2011. "Does better local governance improve district growth performance in Indonesia?," Working Paper Series 1711, Department of Economics, University of Sussex.
  2. Skoufias, Emmanuel & Olivieri, Sergio, 2013. "Sources of spatial welfare disparities in Indonesia: Household endowments or returns?," Journal of Asian Economics, Elsevier, vol. 29(C), pages 62-79.

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