Rudy Badrudin, Ari Warokka
The debate of the impact of government decentralization on economic performance and growth is a contested issue. Triggered by the waves of decentralization occurred in many developing countries over the past few decades, following the demise of a development paradigm in which centralized states played a leading role, have led into the important research question, i.e. the effects of decentralization on the equality growth. The recent studies have questioned the existence of a negative relationship between inequality and growth, which becomes the major dilemma of governance institutions in a developing country. Those studies revealed that inequality would be associated with growth more strongly in democracies, which decentralization and autonomy are the proxies. Inequality is bad for growth because it leads to high levels of redistribution, which lead to lower growth. Those empirical findings also revealed that inequality leads to less redistribution, and inequality can be harmful to growth either because redistribution is actually growth enhancing, or because it has other indirect effects on growth. This study aims at re-examining the effect of Indonesian autonomy policy on the equality growth. By using 35 autonomous districts and urban municipals in Central Java Province (Indonesia) for eight years (2001-2008), the study employed a quantified BCG Matrix analysis to test two hypotheses. The results showed that decentralization (the regional autonomy program) has caused inequality of growth, either in the contribution value or in the growth rate of GDP. The results imply that the implementation of decentralization policy and development strategy should be based on the individual characteristics of each regency, or endogenous development. This study contributes to the governance practices, i.e. giving an insightful panorama how to create a better coordination between central government and local management, especially in implementing the stabilized macro economy policy. © 2013 International Business Information Management Association.
STIE YKPN School of Business, Yogyakarta, Indonesia; Master of Management Program, State University of Jakarta, Indonesia
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