The Political Economy of Infrastructure Development in Indonesia

Abstract

This thesis presents an in-depth examination of the institutional dynamics of infrastructure development in Indonesia. The country is of interest among other developing nations due to its potential as a future leading economy in the global arena, its experience in successfully navigating the 1998 Asian economic crisis, and the significant governmental transformation from one of the most centralised to one of the most decentralised nations. The research seeks to provide a far more holistic understanding, than previous studies, of the driving forces and distributional outcomes of this developing country’s infrastructure progression since the early 1970s, marking the beginning of the New Order era that significantly influenced Indonesia's post-independence development. The research examines both national-level and sectoral dynamics within critical areas of infrastructure: the electricity and road transport sectors, representing economic infrastructure, and the health and education sectors, signifying social infrastructure.

For its analytical framework, the research employs two distinct methodologies: panel Structural Vector Autoregression (SVAR) analysis and the Régulationist analysis. The former method utilises simultaneous panel regression to assess the macroeconomic impacts of public infrastructure investment in Indonesia, situating it within the broader context of developing nations and contrasting it with advanced economies. The latter approach utilises a framework of five institutional forms – monetary regime, wage-labour nexus, form of competition, form of the state, and international position – to determine the influence of each, and their conjunction, in shaping Indonesia’s infrastructure development. This method also elucidates the interrelationship between economic and social infrastructure sectoral development and the macroeconomic processes of capital accumulation and development.