One Size Does Not Fit All: The Heterogenous Impact of Democracy on Economic Growth in Indonesia

Abstract

Indonesia's democratic level has grown during the last decade. Unfortunately, economic growth is on the decline at the same time. Based on this phenomenon, this study investigates whether democracy has a causal impact on economic growth. The panel data used in this study spans 33 Indonesian provinces from 2009 to 2020. The fixed-effect analytical model was employed to capture the effects of changes in provincial characteristics. This study provides empirical evidence that democracy supports economic growth, even though human capital, infrastructure capital, and government and trade policies are considered in the analytical model. By splitting the sample, this study finds that democracy is a predictor of economic growth in provinces in Java and provinces in the Western Part of Indonesia. The findings in this study have implications for policymakers and researchers; ”One Size Does Not Fit All” in democracy context. The democracy-based economic growth strategy in Java and Western Indonesia needs to be maintained. Strengthening political rights and improving the quality of democratic institutions, on the other hand, are required to ensure that the economic benefits of democracy can be noticed Outside of Java and Eastern Indonesia.

Determinants of Indonesia’s Regional Economic Growth During The Era of Regional Autonomy

“…This means that in the government system, there are still many violations in elections and limited freedom of the people; the media needs to be more objective in conveying information. This study is in line with the survey by Nairobi et al (2021) and Jamil et al (2022).…”

“…Improvement of the democratic system is needed by strengthening the social norms that apply in society, such as reducing corrupt behavior in politics and money politics to buy and sell positions. Jamil et al (2022) added that democracy would benefit from increasing economic growth by providing freedom of political rights and strengthening institutional quality. Sima (2023) concluded that countries with strong democratic structural foundations grow faster than countries with autocratic government systems.…”

Decomposed Impact of Democracy on Indonesia’s Economic Growth

“…Furthermore, another study, which also utilized data spanning from 2009 to 2020 across 33 Indonesian provinces, demonstrated that democracy significantly supports economic growth. Similarly, this one also relied on a single composite index of democracy [28]. In contrast, a separate study that utilized data from 33 Indonesian provinces spanning from 2010 to 2020 found that democracy is detrimental to regional economic growth.…”

Does Village Fund Reduce Poverty and Disparity in East Java Province? Evidence from Indonesia

“…This inequality was initially brought on by variations in the population makeup of each region (Sjafrizal, 2017). Because of these variations, each location has a particular capacity to promote development and boost economic growth (Jamil, Ananda, & Prasetyia, 2022). Therefore, it is not surprising that each region typically has both highly developed and impoverished areas.…”