Taking the upcoming 20 year anniversary of Indonesia’s reform process as a reference point, this project seeks to explore the effect of the country’s decentralisation reforms over the past two decades. This webinar is the last of a series of three and focuses on inequality, poverty and education sector performance at the subnational level.
REGIONAL ECONOMIC STUDIES PROGRAMME WEBINAR
Friday, 18 December 2020 – ISEAS – Yusof Ishak Institute hosted a webinar on “Indonesia’s Decentralisation Reforms 20 Years On: Part 3” which was delivered by Asep Suryahadi, Senior Research Fellow at The SMERU Research Institute in Jakarta, Indonesia, Iqbal Dawam Wibisono, Consultant at the World Bank Jakarta Office and Researcher at the Center for Economics and Development Studies (CEDS), Padjadjaran University, in Bandung, Indonesia and Priasto Aji, Economist at the Asian Development Bank (ADB) Indonesia Resident Mission.
In the webinar, Mr Suryahadi and his colleagues sought to present their research findings on whether decentralization in Indonesia has led to a convergence or divergence in income per capita, inequality, and poverty across districts.
Mr Suryahadi started off his presentation by sharing a brief background of the research. He elaborated on the two opposing views on decentralization and regional inequality. The first is on how decentralization could increase regional inequality by weakening the equalization role of the central government. However, this may strain sub-national governments especially those lacking fiscal and resources capacity. Conversely, the second view contends that decentralization could decrease regional inequality by effectively allocating resources. He pointed out how there has been steady economic growth, continuous reduction in poverty and an increase in vertical inequality from 2002 to 2019.
Next Mr Wibisono explained the conceptual framework of convergence and discussed the accompanying literature review. Two spatial econometric models were employed: the spatial autoregressive model (SAR) and the spatial error model (SEM). He elaborated on the ways the data was collected and how variables such as inequality and conditional convergence were measured and tested for. The data collected covers the time period of 2002-2019.
Mr Aji then shared the results from their research. They had found that most districts had experienced an increase in income per capita. Moreover, income per capita growth was higher in districts with lower initial income per capita. The estimation results of income per capita model provided further proof of conditional convergence. According to the heterogeneity analysis, conditional convergence holds in urban and rural districts, but occurs faster in the latter. Most districts experienced an increase in inequality. The growth in inequality was higher in districts with lower levels of initial inequality. Most districts had also experienced a decrease in poverty rate. The rate of poverty reduction was higher in districts with higher initial poverty rate.
In conclusion, the speakers found that since decentralization, Indonesia had achieved significant improvement in people’s welfare, albeit with an increase in inequality. Conditional convergence of income per capita, inequality, and poverty rate were observed across the districts. Districts were seen to converge to different steady states due to differences in districts’ endowment factors.
The webinar concluded with the researchers answering several questions posed by the audience. Some of the questions discussed the likelihood of convergence without decentralization and several ways to prevent an increase in inequality.
This webinar is supported by Konrad Adenauer Stiftung.