Local Government Splits and Economic Activities: Micro-Level Evidence from Indonesia

Esa A. Asyahid
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Esa A. Asyahid: Warwick University

Warwick-Monash Economics Student Papers from Warwick Monash Economics Student Papers

Abstract: Although local government splits have been widely implemented in developing countries, there is limited empirical evidence on their effects on economic activities. This study investigates the impacts of district splits on household business activities using a rich household-level panel dataset that spans over 20 years and covers an episode of massive district splits in Indonesia. Using a difference-in-differences approach, I found that district splits do not improve non-farm business revenue growth. Instead, they drive more businesses to exit from the industry. On the other hand, district splits improve farm business revenue growth and entry into this industry. However, the growth effect is not driven by productivity improvement as expected, but solely the result of land input expansion, which is likely acquired in unsustainable ways. Additionally, district splits decrease out-migration, aligning with the Tiebout sorting model. Taken together, these findings add another argument for the need to reevaluate the current practices and regulations on local government splits.

Keywords: D13; D73; H77 JEL classifications: local government splitting; Indonesia; household business; difference-indifference (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-dev, nep-eff, nep-sbm, nep-sea and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:wrkesp:70

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