The unifying theme of this dissertation is spatial inequality, driven by two primary motivations. First, spatial inequality can contribute to overall inequality across households or among individuals. Second, spatial inequality can jeopardise the fabric of society, upsetting social and political stability. Regional disparities have increasingly become the focus of policy and academic interests, especially in a diverse society such as Indonesia, where geographic units often align with divisions in economic performance, political and cultural aspirations, language, and religion, among others. This dissertation assesses spatial inequality and convergence dynamics across districts in East Java and studies the impact of Indonesia's 2001 fiscal decentralisation on regional income disparities across these districts.
East Java was chosen as a case study because of its economical and geopolitical importance to Indonesia. In addition, East Java has been dubbed a case of ‘balanced development’, an assessment that this dissertation intends to re-examine. By synthesising the approaches of sigma and beta convergences and distribution dynamics, and by employing a variety of methods, this dissertation finds an increasing trend of inequality, as well as the strong presence of clubs convergence with a slow and conditional catch-up process. The clusters of low-, medium-, and high-income districts are expected to remain. These findings offer an invitation for scholars and policymakers to revisit the never-obsolete debate between a strategy of place-based prosperity and one of people-centered prosperity, as well as to examine the specific potential applications for East Java.
Indonesia's 2001 fiscal decentralisation attempted to promote equalisation by addressing vertical and horizontal imbalances and by providing district governments with incentives for development. One important research question is whether Indonesia's decentralisation has delivered on its equity promise. Using fixed-effects panel estimation, this dissertation seeks to determine whether income disparities have reduced across districts, whether decentralisation has been an inequality-reducing force, and how the districts’ level of development may have influenced the effect of decentralisation on inequality. The findings reveal that a reduction in inequality is associated with greater decentralisation. However, the impact of decentralisation on disparities across districts is affected by the districts’ level of development. Inequality may persist until Indonesian districts reach a certain level of development, which seems to be out of reach for most.
Decentralisation has narrowed inequality between Indonesian districts, which suggests that Indonesia should continue to decentralise. However, decentralisation should be seen as part of a broader development strategy in which the ultimate objective is a higher level of development. Preserving and attracting economic activities should be the primary features of district governments’ economic development plans. These efforts entail many other measures, such as (a) maintaining and improving the level and quality of infrastructure, and (b) reaching out for cooperation with other districts to share best practices or the costs of certain development projects, or to generate and exploit economies of scale.
© 2015 Andi Irawan