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The political economy of local governance: findings from an Indonesian field study

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  • Christian von Luebke

Abstract

Why do some local governments perform well, while others perform badly? The rapid shift from centralised-authoritarian to decentralised-democratic rule in Indonesia has been accompanied by a large variation in sub-national government policies across districts. Based on eight district case studies comprising 1,000 business surveys and 120 in-depth interviews, this paper argues that demand-side pressures from local firms, associations and district councils are less significant than supply-side pressures from local government leaders in explaining variations in taxation, licensing and corruption practices. In Indonesia's early transition to democratic decentralisation, societal pressures have been constrained by collective action problems and perverse political incentives. Local government leaders, on the other hand, have strong powers and new incentives for policy reform. In response to the good governance debate, this study's findings suggest that government leadership is an important, often under-estimated, policy determinant that can compensate for (or aggravate) weak societal checks in transitioning economies.

Suggested Citation

  • Christian von Luebke, 2009. "The political economy of local governance: findings from an Indonesian field study," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 45(2), pages 201-230.
  • Handle: RePEc:taf:bindes:v:45:y:2009:i:2:p:201-230
    DOI: 10.1080/00074910903040310
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    Citations

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    Cited by:

    1. Moricz, Sara & Sjöholm, Fredrik, 2014. "The Effect of Elections on Economic Growth: Results from a Natural Experiment in Indonesia," Working Papers 2014:15, Lund University, Department of Economics.
    2. Alberto Alesina & Caterina Gennaioli & Stefania Lovo, 2019. "Public Goods and Ethnic Diversity: Evidence from Deforestation in Indonesia," Economica, London School of Economics and Political Science, vol. 86(341), pages 32-66, January.
    3. McCarthy, John F. & Gillespie, Piers & Zen, Zahari, 2012. "Swimming Upstream: Local Indonesian Production Networks in “Globalized” Palm Oil Production," World Development, Elsevier, vol. 40(3), pages 555-569.
    4. Paul Pelzl & Steven Poelhekke, 2023. "Democratization, leader education and growth: firm-level evidence from Indonesia," Journal of Economic Growth, Springer, vol. 28(4), pages 571-600, December.
    5. Wang, Huanming & Ran, Bing, 2022. "How business-related governance strategies impact paths towards the formation of global cities? An institutional embeddedness perspective," Land Use Policy, Elsevier, vol. 118(C).
    6. Ricks, Jacob I., 2016. "Building Participatory Organizations for Common Pool Resource Management: Water User Group Promotion in Indonesia," World Development, Elsevier, vol. 77(C), pages 34-47.
    7. Paul Smoke, 2013. "Why Theory and Practice are Different: The Gap Between Principles and Reality in Subnational Revenue Systems," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1313, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    8. Rothenberg, Alexander D. & Gaduh, Arya & Burger, Nicholas E. & Chazali, Charina & Tjandraningsih, Indrasari & Radikun, Rini & Sutera, Cole & Weilant, Sarah, 2016. "Rethinking Indonesia’s Informal Sector," World Development, Elsevier, vol. 80(C), pages 96-113.
    9. Vásquez, William F., 2011. "Household preferences and governance of water services: A hedonic analysis from rural Guatemala," IFPRI discussion papers 1152, International Food Policy Research Institute (IFPRI).
    10. Winters, Matthew S. & Karim, Abdul Gaffar & Martawardaya, Berly, 2014. "Public Service Provision under Conditions of Insufficient Citizen Demand: Insights from the Urban Sanitation Sector in Indonesia," World Development, Elsevier, vol. 60(C), pages 31-42.
    11. Korte, Nina, 2011. "It's Not Only Rents: Explaining the Persistence and Change of Neopatrimonialism in Indonesia," GIGA Working Papers 167, GIGA German Institute of Global and Area Studies.
    12. Barli Suryanta & Arianto A. Patunru, 2023. "Determinants of Foreign Direct Investment in Indonesia," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 15(1), pages 109-131, January.
    13. Julien Hanoteau & Gandhi Pawitan & Virginie Vial, 2021. "Does social capital reduce entrepreneurs' petty corruption? Evidence across Indonesian regions," Papers in Regional Science, Wiley Blackwell, vol. 100(3), pages 651-670, June.
    14. Sacks, Audrey & Rahman, Erman & Turkewitz, Joel & Buehler, Michael & Saleh, Imad, 2014. "The dynamics of centralized procurement reform in a decentralized state : evidence and lessons from Indonesia," Policy Research Working Paper Series 6977, The World Bank.
    15. Lipsey, Robert E. & Sjöholm, Fredrik, 2010. "FDI and Growth in East Asia: Lessons for Indonesia," Working Paper Series 852, Research Institute of Industrial Economics.
    16. Anh Ngoc Nguyen & Nguyen Thi Tuong Anh & Nguyen Ngoc Minh & Nguyen Thi Phuong Mai, 2018. "SOUTH KOREAN MULTINATIONAL ENTERPRISES AND VIETNAM SMEs’ PARTICIPATION IN GLOBAL PRODUCTION NETWORKS IN THE CONTEXT OF INCREASED ASEAN AND EAST ASIAN REGIONAL ECONOMIC INTEGRATION," Working Papers 03, Development and Policies Research Center (DEPOCEN), Vietnam.
    17. Berenschot, Ward & Mulder, Peter, 2019. "Explaining regional variation in local governance: Clientelism and state-dependency in Indonesia," World Development, Elsevier, vol. 122(C), pages 233-244.

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