Corruption and Indonesia’s Regional Economic Performance

Zuhairan Yunmi Yunan, Ben Freyens and Yogi Vidyattama

Bulletin of Indonesian Economic Studies, 2025, vol. 61, issue 2, 205-227

Abstract: Whether corruption supports or hampers economic growth is a vexed theme in development research, particularly at the subnational level, where research is scant. This paper uses corruption data from court reports to analyse how corruption affects economic performance at the subnational level in Indonesia. The regression models use dynamic panel estimation incorporating spatial dependence, and dealing with endogeneity and omitted variables. We find a consistent negative effect of corruption on regional growth across all specifications. Spatial effects reveal the influence of neighbouring districts’ growth, which amplifies the negative impact of corruption. The evaluation of potential corruption pathways indicates that government size, poverty, education and infrastructure do not significantly mediate corruption at the subnational level. The policy implication is that anti-corruption efforts must be both targeted and well-coordinated: merely maintaining the level of government service or provision of infrastructure does not address the negative consequences of corruption on regional economic growth.

Date: 2025
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DOI: 10.1080/00074918.2024.2437826

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Bulletin of Indonesian Economic Studies is currently edited by Firman Witoelar Kartaadipoetra, Arianto Patunru, Robert Sparrow, Sarah Xue Dong and Sean Muir

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