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A Tale of Two Cities: The Political Economy of Local Investment Climates in Indonesia

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  • Arianto A. Patunru
  • Neil McCulloch
  • Christian von Luebke

Abstract

There is little doubt that protecting property rights, reducing corruption, and improving public services are desirable long-term objectives for all countries. But are such institutional prescriptions sufficient, or even necessary, to achieve investment and growth? By exploring the political economy of the cities of Solo and Manado in Indonesia, this article shows that relationship-based, rather than rule-based, cooperation between government leaders and local firms can provide an effective mechanism to boost investment and improve local investment climates. Our findings challenge the conventional wisdom that impartial rule-based economic governance is a precondition for investment, although it suggests that the creation of such institutions may make growth more sustainable and equitable in the medium and long term.

Suggested Citation

  • Arianto A. Patunru & Neil McCulloch & Christian von Luebke, 2011. "A Tale of Two Cities: The Political Economy of Local Investment Climates in Indonesia," Journal of Development Studies, Taylor & Francis Journals, vol. 48(7), pages 799-816, July.
  • Handle: RePEc:taf:jdevst:v:48:y:2012:i:7:p:799-816
    DOI: 10.1080/00220388.2011.638048
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    File URL: http://hdl.handle.net/10.1080/00220388.2011.638048
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    Cited by:

    1. Alberto Alesina & Caterina Gennaioli & Stefania Lovo, 2014. "Public Goods and Ethnic Diversity: Evidence from Deforestation in Indonesia," NBER Working Papers 20504, National Bureau of Economic Research, Inc.

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