The study looks into how governance qualities of decentralized governments mediate the impacts of decentralization on development. Based on a set-oriented approach, the study analyzed data from a nation-wide survey conducted with business managers from all provinces in Indonesia, and found evidence that, despite the country’s uniform decentralization reform, individual provinces exhibited great variation in the qualities of their various physical and institutional infrastructures. Notably, these qualities assumed nested relations, with order and security as well as accountability and rule of law seemingly being the preconditions of basic infrastructure provision as well as local governments’ coordination. Moreover, business investment decisions (measured as staff expansion and product innovation) were found to vary with some specific combinations of these infrastructural conditions. The result provides evidence supporting the argument that both physical and institutional infrastructures are instrumental to realize the supposed benefits of decentralization and supports the recent call of the literature to look into the political-institutional complex in the process of decentralization reform.

Abiad A and Teipelke R (2017). Infrastructure provision in developing Asia’s giants: A comparative perspective on China, India, and Indonesia. Journal of Infrastructure, Policy and Development, 1 (1), 24-43.

Abidin A (2009). “When the burden is shouldered alone: Experiences in autonomy at regencies and municipalities”. In: Holtzappel CJG and Ramstedt M (eds.). Decentralization and regional autonomy in Indonesia: Implementation and challenges. Singapore: ISEAS Publishing, pp. 59–74.

Acemoglu D and Robinson J (2012). Why nations fail: The origins of power, prosperity and poverty. London, UK: Crown Publishing Group.

Akai N and Sakata M (2002). “Fiscal decentralization contributes to economic growth: Evidence from state-level cross-section data for the United States”. Journal of Urban Economics, 52(1): 93–108. doi: 10.1016/S0094-1190(02)00018-9.

Ansell C and Gash A (2008). “Collaborative governance in theory and practice”. Journal of Public Administration Research and Theory, 18(4): 543–571. doi: 10.1093/jopart/mum032.

Aspinall E and Fealy G (2003). Local Power and Politics in Indonesia: Democratization and Decentralization. Singapore: Institute of Southeast Asian Studies.

Azis IJ (2003). “Concepts and practice of decentralization: Some notes on the case of Indonesia”. Policy Dialogue on ‘Empowering Women in Autonomy and Decentralization Process’, May 29. New York, NY, USA: Office of the Permanent Mission of Indonesia to the United Nations.

Bahl R (1999). “Implementation rules for fiscal decentralization”. Paper presented at the International Seminar on Land Policy and Economic Development, Land Reform Training Institute, Taiwan, November 17, 1998. Atlanta, GA, USA: Georgia State University, School of Policy Studies.

Bardhan P (2002). “Decentralization of governance and development”. The Journal of Economic Perspectives, 16(4): 185–205. doi: 10.1257/089533002320951037.

____ (2016). “State and development: The need for a reappraisal of the current literature”. The Journal of Economic Literature, 54(3): 862–892. doi: 10.1257/jel.20151239.

Blanchard O and Shleifer A (2000). “Federalism with and without political centralization: China versus Russia”. NBER Working Paper Series No. 7616. Cambridge, MA, USA: National Bureau of Economic Research. doi: 10.3386/w7616.

Bouckaert G, Peters BG and Verhoest K (2010). The coordination of public sector organizations: Shifting patterns of public management. London, UK: Palgrave Macmillan. doi: 10.1057/9780230275256.

Bogdanor V (2005). Joined-up government. Oxford, UK: Oxford University Press. doi: 10.5871/bacad/9780197263334.001.0001.

Christensen T and Lægreid P (2007). “The whole-of-government approach to public sector reform”. Public Administration Review, 67(6): 1059–1066. doi: 10.1111/j.1540-6210.2007.00797.x.

Coase RH (1992). “The institutional structure of production”. The American Economic Review, 82(4): 713–719.

Davoodi H and Zou H-F (1998). “Fiscal decentralization and economic growth: A cross-country study”. Journal of Urban Economics, 43(2): 244–257. doi: 10.1006/juec.1997.2042.

Evans P (1995). Embedded autonomy: States and industrial transformation. Princeton, NJ, USA: Princeton University Press.

Faguet J-P (2014). “Decentralization and governance”. World Development, 53: 2–13. doi: 10.1016/j.worlddev.2013.01.002.

Fukuyama F (2013). “What is governance?” Governance, 26(3): 347–368. doi: 10.1111/gove.12035.

Greif A (2006). Institutions and the path to the modern economy: Lessons from medieval trade. New York, NY, USA: Cambridge University Press. doi: 10.1017/CBO9780511791307.

Gulick L (1937). “Notes on the theory of organization”. In: Gulick L and Urwick L (eds.). Papers on the science of administration. New York, NY, USA: Institute of Public Administration, pp. 1–49.

Hadiz VR (2003). “Power and politics in North Sumatra: The uncompleted reformasi”. In: Edward A and Fealy G (eds.). Local power and politics in Indonesia: Decentralisation and democratisation. Singapore: Institute of Southeast Asian Studies, pp. 119–131.

Haggard S and Tiede L (2011). “The rule of law and economic growth: Where are we?” World Development, 39(5): 673–685. doi: 10.1016/j.worlddev.2010.10.007.

Hayek FA (1948). Individualism and economic order. Chicago, IL, USA: University of Chicago Press.

Henckel T and McKibbin, WJ (2017). “The economics of infrastructure in a globalized world: Issues, lessons and future challenges”. Journal of Infrastructure, Policy and Development, 1 (2): 254-272.

Holtzappel CJG (2009). “Introduction: The regional governance reform in Indonesia, 1999-2004”. In Holtzappel CJG and Ramstedt M (eds.). Decentralization and regional autonomy in Indonesia: Implementation and challenges. Singapore: Institute of Southeast Asian Studies.

Knoll M and Zloczysti P (2012). “The good governance indicators of the millennium challenge account: How many dimensions are really being measured?” World Development, 40(5): 900–915. doi: 10.1016/j.worlddev.2011.11.010.

Lægreid P, Randma-Liiv T, Rykkja LH and Sarapuu K (2014). “Introduction: Emerging coordination practices in European public management”. In: Lægreid P, Sarapuu K, Rykkja LH, Randma-Liiv, T. (eds.). Organizing for coordination in the public sector: Practices and lessons from 12 European countries. London, UK: Palgrave Macmillan. doi: 10.1057/9781137359636.

Lin JY and Liu Z (2000). “Fiscal decentralization and economic growth in China”. Economic Development and Cultural Change, 49(1): 1–21. doi: 10.1086/452488.

Litvack J, Ahmad J and Bird R (1998). Rethinking decentralization in developing countries. Washington, DC, USA: The World Bank.

Neyapti B (2005). “Fiscal decentralization and socio-economic outcomes in Turkey: An empirical investigation”. METU Studies in Development, 32(2): 433–465.

North DC (1990). Institutions, institutional change and economic performance. Cambridge, UK: Cambridge University Press. doi: 10.1017/CBO9780511808678.

North DC, Wallis JJ and Weingast BR (2009). Violence and social orders: A conceptual framework for interpreting recorded human history. Cambridge, UK: Cambridge University Press. doi: 10.1017/CBO9780511575839.

O’Toole LJ and Meier KJ (2004). “Public management in intergovernmental networks: Matching structural networks and managerial networking”. Journal of Public Administration Research and Theory, 14(4): 469–494. doi: 10.1093/jopart/muh032.

Pollitt C and Bouckaert G (2011). Public management reform: A comparative analysis—New public management, governance, and the neo-Weberian state. 3rd ed. Oxford, UK: Oxford University Press.

Qian Y and Weingast BR (1997). “Federalism as a commitment to preserving market incentives”. The Journal of Economic Perspectives, 11(4): 83–92. doi: 10.1257/jep.11.4.83.

Ragin CC (2008). Redesigning social inquiry: Fuzzy sets and beyond. Chicago, IL, USA: University of Chicago Press. doi: 10.7208/chicago/9780226702797.001.0001.

Ramage DE (2007). “Indonesia: Democracy first, good governance later”. Southeast Asian Affairs, 2007: 135–157.

Ray D (2009). “Decentralization, regulatory reform, and the business climate”. In: Holtzappel CJG and Ramstedt M (eds.). Decentralization and regional autonomy in Indonesia: Implementation and challenges. Singapore: ISEAS Publishing, pp. 150–182.

Rosenbloom DH (1983). “Public administrative theory and the separation of powers”. Public Administration Review, 43(3): 219–227. doi: 10.2307/976330.

____ (2013). “Reflection on ‘Public administration theory and the separation of powers’”. The American Review of Public Administration, 43(4), 381–396. doi: 10.1177/0275074013483167.

Shirley MM (2005). “Institutions and development”. In: Ménard C and Shirley MM (eds.). Handbook of new institutional economics. Dordrecht, the Netherlands: Springer, pp. 611–638. doi: 10.1007/0-387-25092-1_25.

Stansel D (2005). “Local decentralization and local economic growth: A cross-sectional examination of US metropolitan areas”. Journal of Urban Economics, 57(1): 55–72. doi: 10.1016/j.jue.2004.08.002.

Svensson J (2005). “Eight questions about corruption”. Journal of Economic Perspectives, 19(3): 19–42. doi: 10.1257/089533005774357860.

Thomson AM and Perry JL (2006). “Collaboration processes: Inside the black box”. Public Administration Review, 66(S1): 20–32. doi: 10.1111/j.1540-6210.2006.00663.x.

Tiebout CM (1956). “A pure theory of local expenditures”. Journal of Political Economy, 64(5): 416–424. doi: 10.1086/257839.

Tosun MS and Yilmaz S (2008). “Decentralization, economic development, and growth in Turkish provinces”. Policy Research Working Paper No. 4725. Washington, DC, USA: World Bank. doi: 10.1596/1813-9450-4725.

United Nations Development Program (UNDP) (2009). “The missing link: The province and its role in Indonesia’s decentralization”. UNDP Policy Issue Paper. Jakarta, Indonesia: UNDP.

Weber M (1946). From Max Weber: Essays in sociology. (Edited and translated by Gerth HH and Wright Mills C). New York, NY, USA: Oxford University Press.

Williamson OE (1985). The economic institutions of capitalism. New York, NY, USA: The Free Press.

Wilson R (2016). “Does governance cause growth? Evidence from China.” World Development 79: 138-151.

Wilson W (1887). “The study of administration”. Political Science Quarterly, 2(2): 197–222. doi: 10.2307/2139277.

World Bank (2003). Decentralizing Indonesia: A regional public expenditure review overview report. Public expenditure review (PER). Washington, DC, USA: World Bank.

Zhang T and Zou H-F (1998). “Fiscal decentralization, public spending, and economic growth in China”. Journal of Public Economics, 67(2): 221–240. doi: 10.1016/S0047-2727(97)00057-1.