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TANJUNGPINANG, KEPULAUAN RIAU] Date: 17 January 2016, At: 23:08

Bulletin of Indonesian Economic Studies

ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20

Regional Income Disparities in Indonesia:

Measurements, Convergence Process, and

Decentralisation

Andi Irawan

To cite this article: Andi Irawan (2015) Regional Income Disparities in Indonesia:

Measurements, Convergence Process, and Decentralisation, Bulletin of Indonesian Economic Studies, 51:1, 148-149, DOI: 10.1080/00074918.2015.1023415

To link to this article: http://dx.doi.org/10.1080/00074918.2015.1023415

Published online: 30 Mar 2015.

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148 Abstracts of Doctoral Theses on the Indonesian Economy

This study also inds that the inability of institutional arrangements to adopt PEM principles has undermined the eficiency of government intervention in the health sector at the district level. Weak institutional arrangements in PEM have

had harmful effects on the size, allocation, and use of public health expenditure,

and have contributed to inequalities in health outcomes in Bengkulu province. Such weaknesses include the absence of constructive political engagement; a lack of policy clarity, consistency, affordability, and predictability; and low lev -els of transparency, comprehensiveness, integration, and accountability. District

governments also face severe ineficiencies in PEM, owing to delays in budget approvals. The introduction of market-based practices in the PEM of the district

governments studied has not prevented potential opportunistic political behav-iour. Policymakers have therefore failed to reduce or eliminate the costs of nego-tiating and enforcing political agreements in allocating public resources, since the

budget can be viewed as a contract.

These indings reinforce criticism that the applicability of the PEM technique is country-speciic. Proper institutional arrangements that address an Indonesia-speciic context are required for the success of PEM. The indings support the view that using hierarchies as an alternative mode of governance is more appro

-priate than relying on markets, which cannot reduce transaction costs. The results- oriented nature of the PEM approach makes it dificult to implement, owing to

serious measurement problems in the health service.

Regional Income Disparities in Indonesia:

Measurements, Convergence Process, and Decentralisation

Andi Irawan ([email protected])

Accepted 2014, University of Illinois at Urbana-Champaign

The unifying theme of this dissertation is spatial inequality, driven by two pri

-mary motivations. First, spatial inequality can contribute to overall inequality across households or among individuals. Second, spatial inequality can jeopard -ise the fabric of society, upsetting social and political stability. Regional disparities have increasingly become the focus of policy and academic interests, especially in

a diverse society such as Indonesia, where geographic units often align with divi -sions in economic performance, political and cultural aspirations, language, and

religion, among others. This dissertation assesses spatial inequality and conver

-gence dynamics across districts in East Java and studies the impact of Indonesia’s 2001 iscal decentralisation on regional income disparities across these districts.

East Java was chosen as a case study because of its economical and geopolitical importance to Indonesia. In addition, East Java has been dubbed a case of ‘bal -anced development’, an assessment that this dissertation intends to re-examine. By synthesising the approaches of sigma and beta convergences and

distribu-tion dynamics, and by employing a variety of methods, this dissertadistribu-tion inds an increasing trend of inequality, as well as the strong presence of clubs convergence with a slow and conditional catch-up process. The clusters of low-, medium-, and

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Abstracts of Doctoral Theses on the Indonesian Economy 149

high-income districts are expected to remain. These indings offer an invitation for scholars and policymakers to revisit the never-obsolete debate between a strat

-egy of place-based prosperity and one of people-centered prosperity, as well as to examine the speciic potential applications for East Java.

Indonesia’s 2001 iscal decentralisation attempted to promote equalisation by

addressing vertical and horizontal imbalances and by providing district

gov-ernments with incentives for development. One important research question is whether Indonesia’s decentralisation has delivered on its equity promise. Using ixed-effects panel estimation, this dissertation seeks to determine whether income disparities have reduced across districts, whether decentralisation has been an inequality-reducing force, and how the districts’ level of development may have inluenced the effect of decentralisation on inequality. The indings reveal that a reduction in inequality is associated with greater decentralisation. However, the

impact of decentralisation on disparities across districts is affected by the districts’

level of development. Inequality may persist until Indonesian districts reach a certain level of development, which seems to be out of reach for most.

Decentralisation has narrowed inequality between Indonesian districts, which suggests that Indonesia should continue to decentralise. However, decentrali

-sation should be seen as part of a broader development strategy in which the

ultimate objective is a higher level of development. Preserving and attracting eco-nomic activities should be the primary features of district governments’ ecoeco-nomic

development plans. These efforts entail many other measures, such as (a) main

-taining and improving the level and quality of infrastructure, and (b) reaching out for cooperation with other districts to share best practices or the costs of certain

development projects, or to generate and exploit economies of scale.

http://dx.doi.org/10.1080/00074918.2015.1023415