The effect of decentralization and free trade agreements on regional disparity in a developing economy: the case of Indonesia, 1993–2005

Adiwan Aritenang and Jung Won Sonn ()

International Journal of Urban Sciences, 2018, vol. 22, issue 4, 546-564

Abstract: Since 1993, Indonesia has experienced both upward and downward restructuring of state power through the ASEAN Free Trade Agreement (AFTA) and fiscal decentralization, respectively. In this study, we investigate the impact of state restructuring on regional disparity. Indonesia is an interesting case because it is one of the few economies in which the upward and downward restructuring of state power occurred almost simultaneously. Based on a panel data analysis of micro-level firm data for the period 1993–2005, we find evidence of neoclassical convergence. Furthermore, decentralization was found to slow this convergence, while the AFTA had no statistically significant impact during the study period.

Date: 2018
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DOI: 10.1080/12265934.2018.1425155

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