Analysis of Institutions and Convergence in Decentralizing Indonesia

Abstract

Efforts to understand disparities in growth achievements among the regions are still being made. The concentration no longer lies in the physical capital, human capital, and population growth, yet it lies in how productivity is affected by institutions and social infrastructures. This study was aimed at investigating the influence of institutions, governance, regulations, and corruption on the income growth and speed of convergence. The estimation methods that we employed were cross-section, static panel, and static-dynamic on 491 data of regencies/cities in Indonesia from 2009 to 2015. This study has indicated that regional government institutions as entities that legally monopolize power in the constitutional system may encourage or distort the growth and speed of convergence, besides physical, human and population growth capitals. Institutions' capability of encouraging or reducing depends on fiscal policies, governance effectiveness (politicians and bureaucrats), the quality of regional regulations produced, and efforts made to eradicate corruption practices. Improper relations and interactions may breed a social conflict and inefficiency resulting in a weak system of incentives in the society and the productivity article.