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Decentralization and Economic Performance in Indonesia

Decentralization and Economic Performance in Indonesia 2025

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The document analyzes the impact of Indonesia's 1999 decentralization law on the country's economic performance. Despite expectations that decentralization would enhance local governance and economic growth, the authors find no significant improvement in national economic outcomes post-decentralization. Using a synthetic case control methodology, they argue that factors such as regional heterogeneity, immobility of resources, and declining local governance quality have undermined the potential benefits of decentralization. The study concludes that while decentralization may empower local governments, it does not guarantee better economic performance without certain preconditions being met.

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What are the effects of decentralization on economy?

The decentralization processes also have consequences, often unintended, for a wide range of political and economic issues such as corruption, party systems, and turnout, on the one hand, and poverty and inequality, long-run macroeconomic performance, the development of social capital, and effectiveness of tax

What is the economic system in Indonesia?

It refers to the transfer of powers, responsibilities, and resources from the central government to elected authorities at the subnational level, with some degree of autonomy. Decentralisation covers three distinct but interrelated dimensions: political, administrative, and fiscal decentralisation.

What is the mixed economy system?

Economy of Indonesia Country group Developing/Emerging Upper-middle income economy Newly industrialized country Statistics Population 282,477,584 (June 2024) GDP $1.492 trillion (nominal; 2025 est.) $4.983 trillion (PPP; 2025 est.) GDP rank 16th (nominal; 2025 est.) 7th (PPP; 2025 est.)35 more rows

What are the economic issues in Indonesia?

What are the major economic issues in Indonesia? Indonesias economy grapples with challenges like dependence on natural resource exports, infrastructure gaps, regional disparities, and a need for skilled labor. Corruption, complex regulations, environmental issues, and income inequality also impede growth.

What type of economic system does Indonesia have?

Indonesia has a mixed economic system which includes a variety of private freedom, combined with centralized economic planning and government regulation. Indonesia is a member of the Asia-Pacific Economic Cooperation (APEC) and the Association of Southeast Asian Nations (ASEAN).