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i

Impact of Governance and Government Expenditure on

Human Development in Indonesia

A Research Paper presented by:

Merita Pahlevi

(Indonesia)

in partial fulfillment of the requirements for obtaining the degree of

MASTER OF ARTS IN DEVELOPMENT STUDIES

Major:

Governance and Development Policy

(GDP)

Specialization:

Public Policy and Management

Members of the Examining Committee:

Mahmood Messkoub Irene van Staveren

The Hague, The Netherlands December 2017

ii

Disclaimer:

This document represents part of the authors study programme while at the

Institute of Social Studies. The views stated therein are those of the author and

not necessarily those of the Institute.

Inquiries:

Postal address: Institute of Social Studies P.O. Box 29776 2502 LT The Hague The Netherlands Location: Kortenaerkade 12 2518 AX The Hague The Netherlands

Telephone: +31 70 426 0460

Fax: +31 70 426 0799

iii

Dedication Page

This paper is dedicated for my beloved husband Abi Iswahyudi and my daughter Dedek Alana

Thank you for every support, sacrifice, patience, understanding, and love

I love You both and Terima Kasih

iv

Contents

List of Tables.................................................................................................................................................................. v

List of Graphs ................................................................................................................................................................ v

List of Diagrams ........................................................................................................................................................... vi

List of Pictures .............................................................................................................................................................. vi

List of Acronyms .......................................................................................................................................................... vi

Abstract ......................................................................................................................................................................... vii

Relevance to Development Studies .......................................................................................................................... vii

Chapter 1 Introduction ................................................................................................................................................. 1

1.1. Background of the Study ........................................................................................................................... 1

1.2. Research question ....................................................................................................................................... 4

1.3. Scope and Limitation .................................................................................................................................. 4

1.4. Organization of the paper.......................................................................................................................... 4

Chapter 2 Theoretical and Analytical Framework ................................................................................................... 6

2.1 Human Development ................................................................................................................................. 6

2.2 Human Development Index ..................................................................................................................... 7

2.3 Governance ................................................................................................................................................11

2.4 Governance, Government Expenditure, and Human Development ...............................................14

Chapter 3 Data and Analysis Method ......................................................................................................................17

3.1 Variables and Sources of Data ................................................................................................................17

3.2 Method of Analysis ...................................................................................................................................20

Chapter 4 Background Situation in Indonesia ........................................................................................................22

4.1 Human Development Index in Indonesia ............................................................................................22

4.2 Education in Indonesia ............................................................................................................................24

4.3 Health in Indonesia...................................................................................................................................25

4.4 Fiscal Decentralization and Social Government Expenditure in Indonesia....................................27

4.5 Governance in Indonesia .........................................................................................................................30

Chapter 5 Findings and Analysis ..............................................................................................................................33

5.1 Regression Result ......................................................................................................................................33

5.2 Discussion ..................................................................................................................................................36

Chapter 6 Conclusion .................................................................................................................................................42

References.....................................................................................................................................................................43

Appendix 1 Regression Result ..................................................................................................................................47

Appendix 2 Human Development Levels and Governance Levels of 33 Provinces in Indonesia in 2008 and 2012 ........................................................................................................................................................................52

Appendix 3 Governance Principals Values in Government Arena of 33 Provinces in 2008 and 2012 ........53

v

List of Tables Table 1.1 Human Development Index and Economic Growth in ASEAN 5 Countries in 2015 ................... 2

Table 1.2 Average Total Government Expenditure and Social Expenditure (Health and Education

Expenditure ASEAN 5 countries between 2000 and 2015 .................................................................................... 3

Table 2.2 Minimum and Maximum amount of each Indicator in Human Development Index .................... 8

Table 2.3 The Changes of Human Development Index Measurement from 1990 to 2014 ........................... 10

Table 2.4 Definition Governance and Good Governance ................................................................................... 12

Table 3.5 The Comparison of HDI Indicators and Formula by Statistics Indonesia before and after 2014

........................................................................................................................................................................................ 17

Table 3.6 Definition of Each Governance Principal in Indonesia Governance Index (IGI) ......................... 18

Table 3.7 Statistics Descriptive of variables in 33 Provinces in Indonesia on 2008 and 2012 ....................... 20

Table 5.1 Regression Result of Governance, Health Expenditure, and Education Expenditure on Human

Development Index in 33 Provinces in Indonesia on 2008 and 2012................................................................ 34

Table 5.2 Regression Result on Governance, Health Expenditure, and Education Expenditure on lagged

HDI ............................................................................................................................................................................... 35

Table 5.3 Cross-tabulation between Governance Level and HDI Level of 33 Provinces in Indonesia in 2008

and 2012 ........................................................................................................................................................................ 37

Table 5.4 List of Provinces in Low Health Status Area and High Health Status Area in 2012 ..................... 39

Table 5.5 Education Expenditure and HDI in Sulawesi Tengah and Sulawesi Utara in 2008 and 2012 ...... 40

Table 5.6 Health Expenditure and HDI in Sulawesi Tengah and Sulawesi Utara in 2008 and 2012 ............ 41

List of Graphs Graph 4.1 Average HDI in provincial level from 1996 to 2016 .......................................................................... 22

Graph 4.2 HDI Provinces from 2004 to 2013 .................................................................................