Decentralization, Democratization, and Public Service Delivery

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Suharnoko Sjahrir University of Freiburg, Germany

1 Decentralization, Democratization, and Public Service Delivery Günther Schulze and Bambang Suharnoko Sjahrir University of Freiburg, Germany Indonesia Update Conference 2013 Canberra, September 2013

2 Outline Introduction Decentralization and Democratization in Indonesia Analytical approach Research questions Approach PSD input Governance / Technology PSD output Concluding remarks

3 Decentralization in Indonesia Indonesia underwent a big-bang decentralization and rapid democratization Start of direct elections of district heads Major events Political/fiscal/administrative decentralization Democratic elections: legislative power to local parliaments Suharto stepped down Year

4 The democratization process The timing of democratically indirect and direct elections was fairly exogenous No. districts Year Appointed district heads Indirectly elected district heads Directly elected district heads

5 Districts gained fiscal authority Local sectoral expenditure p.c. increased considerably Average Level ln Mean p.c. expenditure INFR. EDUC. HEALTH Years Source: SIKD, Min. of Finance

6 Public service delivery did not improve much over time Average Level PSD Level INFRA HEALTH EDU Years Source: Susenas, Podes (BPS)

7 Central questions Have things become better for the people? Better governance? Better services? Better preference matching, higher transparency and participation or local capture? Heterogeneity of districts: convergence or divergence? Methodological challenge: missing counterfactual

8 This paper Reports on the existing large scale empirical research by Bambang Suharnoko Sjahrir, joint with Krisztina Kis-Katos and Günther G. Schulze. Panel dataset: District level, 418 out of 477, excl. NAD, Papua and DKI Balanced and unbalanced, from 1994 to 2009 Fiscal variables for 3 sectors (MoF) Levels of public physical infrastructure (BPS: Susenas, Podes) Ratio of jun. secondary schools to jun. School-aged children Ratio of health clinics (Puskesmas) to population Share of villages with paved roads Timing of local elections (exogeneously determined), national elections and local parliamentary compositions (KPU, MoHA, TAF, WB) Other controls (BPS, MoF) 8

9 The analytical approach Three complementary approaches to measure the effect of institutional change on PSD PS (health, edu, infra.) Output Has PSD output improved? Technology/ Governance Has the process of PSD become more efficient/ less wasteful? Input Have inputs become more correlated with PSD level? 9

10 Input : public expenditure (1) Source: Kis-Katos and Sjahrir (2013) RQ : Had DEC and DEMO an effect on expenditure patterns for core services? Method : balanced panel , SUR FE on health, education and infrastructure Results : District spends more if its PSD level is relatively low after decentralization No systematic changes with the democratization process

11 Governance/technology : Administrative spending (1) Government administrative spending is relatively high p.c. Public expenditures (in '000 Rupiah) Govt. Administrative Health Education Infrastructure Agriculture Other sectors Years Source : Sjahrir et al. (2013)

12 Governance/technology: Administrative spending (2) Source : Sjahrir, Kis-Katos and Schulze (2013) RQ : what are the determinants of administrative spending? Method : unbalanced panel , Pooled OLS, FE Results : Splitting is not the main reason, lack of accountability is Democratic accountability not (yet) effective Higher in districts with lower political competition

13 Output : PSD level (1) Source: Schulze and Sjahrir (2013) RQ : Convergence or divergence? Have DC and DEMO altered PSD? Determinants of PSD Method : unbalanced panel SUR FE on health, education and infrastructure Synthetic counterfactual: prior trend

14 Output : PSD level (2) Convergence in secondary education Growth of jnr. secondary schools ratio (in percentage point) Growth of jnr. secondary schools ratio (in percentage point) No. of junior secondary schools (jsc) per 100 jsc-aged Children No. of 1994 junior secondary schools (jsc) per 100 jsc-aged Children 2001 Source : Schulze and Sjahrir (2013)

15 Output : PSD level (3) But not in health Growth of puskesmas ratio (in percentage point) Growth of puskesmas ratio (in percentage point) No. of health clinics (Puskemas) per people No. of health clinics (Puskemas) per people 2001 Source : Schulze and Sjahrir (2013)

16 Output : PSD level (4) And only slightly in infrastructure Growth of Sh. villages w/ paved roads (in percentage point) Growth of Sh. villages w/ paved roads (in percentage point) Share of villages w/ paved roads Share of villages w/ paved roads 2001 Source : Schulze and Sjahrir (2013)

17 Output: PSD level (5) Results Convergence. Lagging districts catch up Money matters. Richer districts provide better services Decentralization tends to make things better No uniform effects of direct election: depends on financial endowment. Source: Schulze and Sjahrir (2013)

18 Concluding remarks First systematic econometric approach to measure the effects of decentralization and democratization on PSD Covers the first decade Democratic accountability still insufficient DEC and DEMO have non-uniform effects, but overall tend to be slightly positive Effects may still unfold The best may yet to come

19 Thank you very much for your attention

I N D O N E S I A U P D A T E Regional dynamics in a decentralised Indonesia

I N D O N E S I A U P D A T E 2 0 1 3 Regional dynamics in a decentralised Indonesia 20 21 September Coombs Lecture Theatre, ANU ANU College of Asia & the Pacific DAY 1 Friday 20 September 8.30 AM REGISTRATION