institutional model of decentralization in action

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ADB Economics Working Paper Series

Institutional Model o Decentralizationin Action

Iwan J. Azis

No. 288 | December 2011



ADB Economics Working Paper Series No. 288

Institutional Model of Decentralization

in Action

Iwan J. Azis

December 2011

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Contents

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Abstract

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I. Introduction

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II. Evidence From Indonesia’s Decentralization

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1 A study by Londregan and Poole (1996) showed that statistically, wealth produced an efect on democracy.Doubling per capita income would increase the degree o democracy in a moderately authoritarian country by30%, while the efect on both, extremely authoritarian countries and relatively open societies, would only leadto a small increase in the level o democracy (around 5%–15%). A more recent study by Benhabib, Corvalan, andSpiegel (2011) shows that by using panel estimation methods allowing or the act that the primary measureso democracy are censored with substantial mass at the boundaries, or binary censored variables, there is astatistically signicant positive income–democracy relationship. The results are robust to the inclusion o countryxed efects.

2 Based on purchasing power parity, the comparative trends o GDP indicate that among Asian nations, Indonesiahad a poor perormance post-1997 crisis.

2 | ADB Economics Working Paper Series No. 288



Table 1: GRDP Growth Before and After Decentralization (percent)

Provinces Pre-

Decentralization

Post-

Decentralization

Provinces Pre-

Decentralization

Post-

Decentralization

1993–1996 2001–2007 1993–1996 2001–2007

NAD 1.74 0.26 Kalbar 9.25 4.73

Sumut 9.18 5.61 Kalteng 9.58 5.59Sumbar 8.08 5.61 Kalsel 9.25 4.96Riau* 4.76 4.22 Kaltim 8.00 2.10Jambi 8.49 5.75 Sulut**** 8.10 5.02Sumsel** 8.26 4.69 Sulteng 8.51 7.06Bengkulu 6.66 5.55 Sulsel***** 7.94 5.63Lampung 8.51 5.20 Sultra 6.59 7.45DKI 8.99 5.71 NTB 7.80 3.70Jabar*** 8.15 5.24 NTT 8.57 4.74Jateng 7.19 4.99 Maluku 6.82 4.64Yogya 7.91 4.48 Malukuta 5.23 4.59Jatim 8.26 5.36 Papua****** 14.19 0.66Bali 7.86 4.66 Total 8.13 4.88

* Includes Kepri.

** Includes Babel.*** Includes Banten.**** Includes Gorontalo.***** Includes Sulbar.****** Includes Irjabar.GRDP = gross regional domestic product.Source: Author’s calculation based on BPS data.

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Institutional Model of Decentralization in Action | 3



T a b l e 2 : H u m a n D e v e l o p m e n t I n d e x

P r o v i n c e s

H D I

S h

o r t f a l l s ( % )

H D I

H D I

H D I

S h o r t f a l l s ( % )

H D I

H D I

S h o r t f a l l s ( % )

1 9 9 0

1 9 9 3

1 9 9 6

1 9 9 0 – 1 9 9 6 1

9 9 3 – 1 9 9 6

1 9 9 0 – 1 9 9 3

2 0 0 2

2 0 0 4

2 0 0 5

2 0 0 4 – 2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 6 – 2 0 0 7

1 . N a n g g r o e A c e h D

6 1 . 9

6 7 . 8

7 0 . 3

3 . 6 7

2 . 5 9

5 . 1 6

6 6 . 0

6 8 . 7

6 9 . 0

1 . 0 2

6 9 . 4 1

7 0 . 3 5

3 . 0 6

2 . S u m a t e r a U t a r a

6 7 . 3

6 9 . 5

7 1 . 7

2 . 2 4

2 . 4 0

2 . 2 4

6 8 . 8

7 1 . 4

7 2 . 0

2 . 1 2

7 2 . 4 6

7 2 . 7 8

1 . 1 6

3 . S u m a t e r a B a r a t

6 5 . 7

6 7 . 2

7 0 . 0

2 . 0 9

2 . 8 5

1 . 4 6

6 7 . 5

7 0 . 5

7 1 . 2

2 . 2 8

7 1 . 6 5

7 2 . 2 3

2 . 0 5

4 . R i a u

6 6 . 9

6 9 . 3

7 1 . 6

2 . 3 7

2 . 5 0

2 . 4 2

6 9 . 1

7 2 . 2

7 3 . 6

5 . 2 0

7 3 . 8 1

7 4 . 6 3

3 . 1 2

5 . J a m b i

6 5 . 8

6 8 . 0

7 0 . 3

2 . 1 9

2 . 4 0

2 . 1 4

6 7 . 1

7 0 . 1

7 1 . 0

2 . 9 2

7 1 . 2 9

7 1 . 4 6

0 . 6 1

6 . S u m a t e r a S e l a t a n

6 5 . 1

6 7 . 5

7 0 . 4

2 . 5 3

2 . 9 7

2 . 2 9

6 6 . 0

6 9 . 6

7 0 . 2

2 . 0 9

7 1 . 0 9

7 1 . 4 0

1 . 0 6

7 . B e n g k u l u

6 5 . 9

6 7 . 4

7 1 . 1

2 . 5 4

3 . 7 8

1 . 4 7

6 6 . 2

6 9 . 9

7 1 . 1

3 . 8 2

7 1 . 2 8

7 1 . 5 7

1 . 0 3

8 . L a m p u n g

6 2 . 2

6 4 . 3

7 0 . 2

3 . 5 3

5 . 5 1

1 . 8 5

6 5 . 8

6 8 . 4

6 8 . 8

1 . 4 7

6 9 . 3 8

6 9 . 7 8

1 . 3 0

9 . B a n g k a B e l i t u n g

6 5 . 4

6 9 . 6

7 0 . 7

3 . 5 4

7 1 . 1 8

7 1 . 6 2

1 . 5 1

1 0 . K e p u l a u a n R i a u

7 0 . 8

7 2 . 2

4 . 8 4

7 2 . 7 9

7 3 . 6 8

3 . 2 7

1 1 . D K I J a k a r t a

7 3 . 5

7 5 . 1

7 7 . 4

2 . 4 5

3 . 0 8

2 . 0 1

7 5 . 6

7 5 . 8

7 6 . 1

1 . 2 7

7 6 . 3 3

7 6 . 5 9

1 . 1 1

1 2 . J a w a B a r a t

6 3 . 5

6 5 . 8

6 9 . 4

2 . 6 9

3 . 5 1

2 . 1 0

6 5 . 8

6 9 . 1

6 9 . 9

2 . 6 0

7 0 . 3 2

7 0 . 7 1

1 . 3 2

1 3 . J a w a T e n g a h

6 5 . 0

6 7 . 0

7 0 . 0

2 . 3 8

3 . 0 3

1 . 9 0

6 6 . 3

6 8 . 9

6 9 . 8

2 . 8 9

7 0 . 2 5

7 0 . 9 2

2 . 2 4

1 4 . Y o g y a k a r t a

6 8 . 5

7 0 . 5

7 3 . 9

2 . 8 6

3 . 8 4

2 . 1 2

7 0 . 8

7 2 . 9

7 3 . 5

2 . 1 6

7 3 . 7 0

7 4 . 1 5

1 . 7 2

1 5 . J a w a T i m u r

6 1 . 1

6 2 . 5

6 5 . 8

2 . 0 1

2 . 9 3

1 . 2 0

6 4 . 1

6 6 . 8

6 8 . 4

4 . 7 5

6 9 . 1 8

6 9 . 7 8

1 . 9 4

1 6 . B a n t e n

6 6 . 6

6 7 . 9

6 8 . 8

2 . 8 5

6 9 . 1 1

6 9 . 2 9

0 . 6 0

1 7 . B a l i

6 4 . 2

6 6 . 6

7 0 . 7

3 . 0 3

4 . 0 9

2 . 2 3

6 7 . 5

6 9 . 1

6 9 . 8

2 . 1 1

7 0 . 0 7

7 0 . 5 3

1 . 5 2

1 8 . N u s a T e n g g a r a B a r a

t

5 3 . 7

5 6 . 8

6 0 . 8

2 . 5 6

3 . 0 9

2 . 2 3

5 7 . 8

6 0 . 6

6 2 . 4

4 . 5 6

6 3 . 0 4

6 3 . 7 1

1 . 8 1

1 9 . N u s a T e n g g a r a T i m u r

4 9 . 0

5 4 . 7

6 1 . 8

4 . 1 8

5 . 2 2

3 . 7 3

6 0 . 3

6 2 . 7

6 3 . 6

2 . 2 9

6 4 . 8 3

6 5 . 3 6

1 . 5 0

2 0 . K a l i m a n t a n B a r a t

5 4 . 3

5 8 . 6

6 4 . 8

3 . 8 3

4 . 9 9

3 . 1 4

6 2 . 9

6 5 . 4

6 6 . 2

2 . 2 7

6 7 . 0 8

6 7 . 5 3

1 . 3 7

2 1 . K a l i m a n t a n T e n g a h

6 3 . 6

6 8 . 6

7 2 . 3

3 . 9 8

3 . 9 3

4 . 5 8

6 9 . 1

7 1 . 7

7 3 . 2

5 . 3 4

7 3 . 4 0

7 3 . 4 9

0 . 3 4

2 2 . K a l i m a n t a n S e l a t a n

6 2 . 7

6 5 . 1

6 7 . 5

2 . 1 4

2 . 2 9

2 . 1 4

6 4 . 3

6 6 . 7

6 7 . 4

2 . 1 0

6 7 . 7 5

6 8 . 0 1

0 . 8 2

2 3 . K a l i m a n t a n T i m u r

6 5 . 9

6 8 . 3

7 0 . 2

2 . 1 0

2 . 0 0

2 . 3 5

7 0 . 0

7 2 . 2

7 2 . 9

2 . 5 1

7 3 . 2 6

7 3 . 7 7

1 . 9 1

2 4 . S u l a w e s i U t a r a

7 0 . 2

7 1 . 8

7 3 . 4

1 . 7 9

1 . 8 9

1 . 7 9

7 1 . 3

7 3 . 4

7 4 . 2

3 . 1 4

7 4 . 3 7

7 4 . 6 8

1 . 2 0

2 5 . S u l a w e s i T e n g a h

6 2 . 4

6 5 . 1

6 8 . 2

2 . 5 7

2 . 9 6

2 . 3 9

6 4 . 4

6 7 . 3

6 8 . 5

3 . 5 0

6 8 . 8 5

6 9 . 3 4

1 . 5 7

2 6 . S u l a w e s i S e l a t a n

6 2 . 4

6 4 . 6

6 7 . 0

2 . 0 4

2 . 2 6

1 . 9 5

6 5 . 3

6 7 . 8

6 8 . 1

0 . 8 7

6 8 . 8 1

6 9 . 6 2

2 . 5 9

2 7 . S u l a w e s i T e n g g a r a

5 7 . 2

5 9 . 6

6 9 . 0

4 . 6 0

7 . 7 6

1 . 8 7

6 4 . 1

6 6 . 7

6 7 . 5

2 . 5 0

6 7 . 8 0

6 8 . 3 2

1 . 6 0

2 8 . G o r o n t a l o

6 4 . 1

6 5 . 4

6 7 . 5

5 . 9 9

6 8 . 0 1

6 8 . 8 3

2 . 5 8

2 9 . S u l a w e s i B a r a t

6 4 . 4

6 5 . 7

3 . 8 1

6 7 . 0 6

6 7 . 7 2

1 . 9 9

3 0 . M a l u k u

6 4 . 1

6 5 . 1

6 9 . 6

2 . 5 5

4 . 3 0

0 . 9 3

6 6 . 5

6 9 . 0

6 9 . 2

0 . 6 9

6 9 . 6 9

6 9 . 9 6

0 . 8 7

3 1 . M a l u k u U t a r a

6 5 . 8

6 6 . 4

6 7 . 0

1 . 7 8

6 7 . 5 1

6 7 . 8 2

0 . 9 5

3 2 . I r i a n J a y a B a r a t

6 3 . 7

6 4 . 8

3 . 2 4

6 6 . 0 8

6 7 . 2 8

3 . 5 4

3 3 . P a p u a

5 1 . 1

5 2 . 2

6 2 . 8

3 . 9 9

7 . 3 9

0 . 7 5

6 0 . 1

6 0 . 9

6 2 . 1

2 . 9 9

6 2 . 7 5

6 3 . 4 1

1 . 7 6

I n d o n e s i a

6 5 . 8

6 8 . 7

6 9 . 6

2 . 8

0

7 0 . 1

0

7 0 . 5 9

1 . 6

4

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Figure 3: Supermatrix of a Network

Figure 4: Entry in the Supermatrix of a Network

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Figure 5: Role of Institutional Factors in Decentralization: Hierarchy Model

Welare

Poverty Inequality GRDP growth HDI

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Figure 6: Role of Institutional Factors in Decentralization: Network Model

Welare

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5 The term “level” is sometimes substituted by “cluster” in ANP, and the terms “elements” and “nodes” areinterchangeable. To apply the network model, this study used Super Decision sotware, and Super Decision andExpert Choice or the hierarchy model.




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T a b l e 3 .

R e s u l t s o f F i e l

d S u r v e y : F o r G r o u p i n H i e r a r c h

y M o d e l

S u p e r D e c i s i o n

E x p e r t c h o i c e

P a l u

N a m e

I d e a l s

N o r m a l s

R a w

O v e r a l l I n c o n s i s t e

n c y = . 2

5

1 P e o p l e ’ s P a r t i c i p a t i o n

1

0 . 3 6 4 1 4 6

0 . 6 0 4 5 6 8

1 P e o

p l e ’ s P a r t i c i p a t i o n

0 . 3 6 4

2 I n i t i a l C o n d i t i o n

0 . 9 6 6 8 5 1

0 . 3 5 2 0 7 5

0 . 5 8 4 5 2 8


0 . 3 5 2

3 A v a i l a b l e B u d g e t

0 . 7 7 9 2 9 6

0 . 2 8 3 7 7 8

0 . 4 7 1 1 3 8

3 A v a

i l a b l e B u d g e t

0 . 2 8 4

J a m b i

N a m e

I d e a l s

N o r m a l s

R a w


n c y = . 0

7


0 . 9 0 9 1 1 1

0 . 4 0 1 5 9 7

0 . 6 4 2 9 8 5

1 P e o


0 . 4 0 2


0 . 3 5 4 6 2 6

0 . 1 5 6 6 5 5

0 . 2 5 0 8 1 6


0 . 1 5 7


1

0 . 4 4 1 7 4 7

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3 A v a


0 . 4 4 2

M a t a r a m

N a m e

I d e a l s

N o r m a l s

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n c y = . 0

4


1

0 . 6 0 1 9 1 8

1

1 P e o


0 . 6 0 2


0 . 1 4 4 8 5 6

0 . 0 8 7 1 9 2

0 . 1 4 4 8 5 6


0 . 0 8 7


0 . 5 1 6 4 9 8

0 . 3 1 0 8 9 0

0 . 5 1 6 4 9 8

3 A v a


0 . 3 1 1

M a l a n g

N a m e

I d e a l s

N o r m a l s

R a w


n c y = . 0

3


1

0 . 5 2 2 4 7 0

0 . 9 9 9 9 8 7

1 P e o


0 . 5 2 2


0 . 5 2 3 0 6 4

0 . 2 7 3 2 8 5

0 . 5 2 3 0 5 7


0 . 2 7 3


0 . 3 9 0 9 2 2

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3 A v a


0 . 2 0 4

B a n j a r m a s i n

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N o r m a l s

R a w


n c y = . 0

2


0 . 6 9 2 8 2 4

0 . 2 8 9 8 8 6

0 . 5 5 7 8 0 8

1 P e o


0 . 3 1 9


0 . 6 9 7 1 6 5

0 . 2 9 1 7 0 2

0 . 5 6 1 3 0 3


0 . 2 7 6


1

0 . 4 1 8 4 1 2

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3 A v a


0 . 4 0 5

B a n d u n g

N a m e

I d e a l s

N o r m a l s

R a w


n c y = . 1

1


1

0 . 5 2 7 8 3 3

1

1 P e o


0 . 5 2 8


0 . 2 6 4 5 5 8

0 . 1 3 9 6 4 2

0 . 2 6 4 5 5 8


0 . 1 4 0


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0 . 3 3 2 5 2 5

0 . 6 2 9 9 8 1

3 A v a


0 . 3 3 3

S e m a r a n g

N a m e

I d e a l s

N o r m a l s

R a w


n c y = . 0

7


1

0 . 4 2 6 4 6 9

0 . 7 1 3 3 2 3

1 P e o


0 . 4 3 3


0 . 4 5 5 3 8 7

0 . 1 9 4 2 0 8

0 . 3 2 4 8 3 8


0 . 2 5 3


0 . 8 8 9 4 4 8

0 . 3 7 9 3 2 2

0 . 6 3 4 4 6 4

3 A v a


0 . 3 1 4

S o u r c e : A u t h o r ’ s c a l c u l a t i o n f r o m s

u r v e y r e s u l t s .




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Table 4: Results of Field Survey: For Group, Individuals, and Combined in Hierarchy Model

Group Survey1

Super Decision Expert Choice

Name Rank Ideals Normals Raw Rank

1 People’s Participation 1 0.93609511 0.43612487 0.76595211 1 0.4430992252 Initial Condition 3 0.41671289 0.19414570 0.34097202 3 0.2000705303 Available Budget 2 0.70685427 0.32932219 0.57837783 2 0.319149594

Individual Survey2

Name Rank Ideals Normals Raw

1 People’s Participation 1 0.73421686 0.37756273 0.691382912 Initial Condition 3 0.40464311 0.20808314 0.38103643

3 Available Budget 2 0.61913245 0.31838190 0.58301257

Combination of Group and Individual Suveys3


1 People’s Participation 1 0.82903366 0.40578873 0.727712992 Initial Condition 3 0.41063366 0.20099365 0.360448003 Available Budget 2 0.66154094 0.32380584 0.58069058

1 Summarized result o the group survey in seven regions based on hierarchy model (using Super Decision and Expert Choicesotware).

2 Summarized result o the individual survey in our regions based on hierarchy model (using Super Decision sotware).3 Summarized result o the group and individual surveys based on Hierarchy Model (using Super Decision sotware).Source: Author’s calculation rom survey results.

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Table 5: Sensitivity Analysis: Removing One Region at a Time for Group and Individuals

in Hierarchy Model

Hierarchy

1. Palu

Name

Individual Group

Rank Ideals Normals Raw


2. Jambi

Name

Individual Group

Rank Ideals Normals Raw Rank Ideals Normals Raw

1 People’s Participation 1 0.813 0.432 0.784 1 0.9407 0.4422 0.78862 Initial Condition 3 0.350 0.186 0.337 3 0.4281 0.2012 0.35893 Available Budget 2 0.549 0.292 0.529 2 0.6671 0.3136 0.5593

3. Mataram

Name

Individual GroupRank Ideals Normals Raw Rank Ideals Normals Raw


4. Malang

Name

Individual Group

Rank Ideals Normals Raw


5. Banjarmasin

Name

Individual GroupRank Ideals Normals Raw Rank Ideals Normals Raw


6. Bandung

Name

Individual Group

Rank Ideals Normals Raw Rank Ideals Normals Raw


7. Semarang

Name

Individual GroupRank Ideals Normals Raw


Source: Author’s calculation rom survey results.




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Table 6: Results of Field Survey: For Individuals in Network Model (individual’s geometric

mean)

Jambi

ANPName Rank Ideals Normals Raw


Mataram

ANP



Bandung

ANP



Individual Survey1



1 Summarized result o the survey in three regions based on network model (using Super Decision sotware).ANP = Analytic Network Process.Source: Author’s calculation rom survey results.




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6 It is important to note, however, that during the eld survey, the network model applied only to individuals, notto groups, and only limited number o region was covered. Nonetheless, the act that people’s participation andsize o budget stand out to be important actors explaining the welare efect o decentralization conrms what issuggested by the proposed model, i.e., that quality and quantity actors play an important role in the analysis.




Table 7: A Three-Player Coordination Game: Paternalistic Scenario

C Plays G C Plays B

LL/LE G B LL/LE G B

G 20, 20, 20 10, 0, 19 G 11, 11, 2 5-ε, 10, 10B 5-ε, 7, 7 10, 10, 2 B 10, 0, 12 6, 6, 6

LE = local elite, LL = local leader.Source: Author’s calculation rom survey results.

Table 8: Sensitivity Analysis

Highest W if Only One Player Plays G

Joint Strategy Social Welfare

W

LL(G) LE(B) 25-εLE(G) LL(B) 27C(G) LL(B) 22

Note: Assuming a small ε, LL(G) generates highest W.

Lowest W if Only One Player Plays B


W

LL(B) LE(G) 19-εLE(B) LL(G) 29C(B) LL(G) 24

LE = local elite, LL = local leader, W = welare.Note: Assuming small H, LL(G) generates smallest W: LE(B) gives highest W.Source: Author’s calculation rom survey results.

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Table 9: A Three-Player Coordination Game: Paternalistic Scenario

C Plays G C Plays B

LL/LE G B LL/LE G B

G 20, 20, 20 10, 0, 5 G 11, 11, 2 5-ε, 10, 10B 5-ε, 7, 7 10, 10, 2 B 10, 5, 12 6, 6, 6

LE = local elite, LL = local leader.Source: Author’s calculation rom survey results.

Table 10: Sensitivity Analysis

Highest W if Only One Player Plays G


W

LL(G) LE(B) 25-εLE(G) LL(B) 27C(G) LL(B) 22

Note: Assuming a small ε, LL(G) generates highest W.

Lowest W if Only One Player Plays B


W

LL(B) LE(G) 19-εLE(B) LL(G) 15C(B) LL(G) 24

LE = local elite, LL = local leader, W = welare.Note: Assuming small H, LL(G) generates smallest W: LE(B) gives highest W.Source: Author’s calculation rom survey results.

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7 The author would like to acknowledge the contribution o Maria Wihardja in leading and summarizing the ve-region survey.




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8 Azis and Wihardja (2010) ound a correlation between various social indicators and institutional elements, namely,local capture, local leadership, and participation level. Using a time lag or the variables on socioeconomicconditions, a correlation is ound between socioeconomic conditions in the predecentralization and earlydecentralization period and institutional elements, namely, local leadership, participation level, and efect o local capture on welare in the postdecentralization period, suggesting another evidence o the endogeneity o institutions.




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V. Concluding Remarks

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bad local leaders. In Azis and Wihardja (2010), the causality o social conditions on institutions is tested by usingdiferent social indicators including the 1999 Human Development Index, the 1999 Human Poverty Index, the 2000inant mortality rate, and the 2003 literacy rate. These indices are plotted against institutional indicators rom theeld study, namely local capture, local leadership, and participation level.




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About the PaperApplying the Institutional Model of Decentralization, Iwan J. Azis argues that thepresumption that local democracy will impose accountability pressure on elected officialsdoes not always hold. Even in a democratic system like in Indonesia, decentralizationpolicy is welfare-enhancing only for the developed regions, not for all, exacerbatinginterregional welfare disparity. This “captured democracy” is largely due to the presence

of “negative local capture”. Where welfare has not improved, limited participation, lowinitial welfare combined with poor quality of local leaders are found to be the mostcritical determinants.

About the Asian Development Bank ADB’s vision is an Asia and Pacific region free of poverty. Its mission is to help itsdeveloping member countries reduce poverty and improve the quality of life of theirpeople. Despite the region’s many successes, it remains home to two-thirds of theworld’s poor: 1.8 billion people who live on less than $2 a day, with 903 millionstruggling on less than $1.25 a day. ADB is committed to reducing poverty throughinclusive economic growth, environmentally sustainable growth, and regional

integration.Based in Manila, ADB is owned by 67 members, including 48 from the region. Its

main instruments for helping its developing member countries are policy dialogue, loans,equity investments, guarantees, grants, and technical assistance.

Asian Development Bank 6 ADB Avenue, Mandaluyong City1550 Metro Manila, Philippineswww.adb.org/economicsISSN: 1655-5252Publication Stock No. WPS124414

December 2011

institutional model of decentralization in action

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