Aritenang, AF; (2012) The Impact of State Restructuring on Indonesia’s Regional Economic Convergence. Doctoral thesis , UCL (University College London).

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Abstract

In recent decades, the state restructuring of trade liberalisation and decentralisation has emerged globally as attempts to promote more equal economic growth. This staterestructuring also occurs in Indonesia following the Asia financial crisis in 1997. As a case study, Indonesia provides two important insights on the study of staterestructuring on regional convergence. First, Indonesia is a member of the ASEAN Free Trade Area (AFTA) that its institutional arrangements emphasis on member countries freedom to determine their own trade liberalisation sectors and schedules. Second, Indonesia decentralisation is a rapid and significant shift of politico-economy and social. Second, there is a rapid and significant shift of politico-economy and social institutional arrangements from centralised to decentralisation regime. These external and internal state-restructuring are expected influence the variety of regional economic development and convergence. This study aims to analyse the impact of state restructuring on disparities at the district level for the period from 1993 to 2005. The study divides the period under observation into three sub periods, the pre-decentralisation, the decentralisation and the whole period. This research aims to achieve this objective with three empirical studies as follows, first, using economic indices, the thesis examine inequality level of district economic growth and industry concentration. Second, econometrics analysis explores the impact of trade openness and decentralisation on regional economic growth. Finally, this thesis adopts comparative political analysis by using the historical institutionalism approach to understand the variation of state restructuring impact. The main findings show that despite evidence of regional convergence, disparities are persistent and severe in the post state restructuring period. The quantitative analysis shows that AFTA has insignificant impact and decentralisation significantly contract regional economic growth. While qualitative case studies in the Batam and Bandung cities found that institutional history and path development strongly influence development progress and discourses. Politico-economy shocks only act as critical juncture that provides opportunity for the state and regions to create new development path. However, path dependence of institutional changes and economic development is bounded by the regions’ past institutional arrangements and knowledge. For Indonesia, a country with long history of authoritarian regime, the role of nation-state remains important to promote balance local development.

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