Theory of Endogenous Institution and Evidence from an In-Depth Study in Indonesia

95 Pages Posted: 18 Jul 2009 Last revised: 1 Feb 2010

See all articles by Iwan J. Azis

Iwan J. Azis

Cornell University

Maria Monica Wihardja

Centre of Strategic and International Studies

Date Written: May 16, 2009

Abstract

We study how endogeneity between welfare and institutions might make institutional reform more subtle. We use evidence from an in-depth field study conducted in five districts in Indonesia and build a model that illustrates how initial socioeconomic condition as well as past institutions generate institutional complexes, including the degree of local capture, local leadership, and participation level. By endogenizing the degree of local capture, we show how cooperation between local leaders and local elites could positively or negatively affect welfare depending on the initial socioeconomic conditions. These institutional complexes that evolve with welfare create self-reinforcing progresses in the long-run. In the context of Indonesia in the post-decentralization period, exogenous shocks, such as an introduction of central government's enforcements on both strengthening local institutions and increasing welfare are needed.

Keywords: Welfare and Poverty, Regional Analyses, Institutions and Growth

JEL Classification: I3, O18, O43

Suggested Citation

Azis, Iwan J. and Wihardja, Maria Monica, Theory of Endogenous Institution and Evidence from an In-Depth Study in Indonesia (May 16, 2009). Available at SSRN: https://ssrn.com/abstract=1434765 or http://dx.doi.org/10.2139/ssrn.1434765

Iwan J. Azis

Cornell University ( email )

West Sibley Hall
Ithaca, NY 14853
United States
607-255-4271 (Phone)
607-255-6681 (Fax)

Maria Monica Wihardja (Contact Author)

Centre of Strategic and International Studies ( email )

The Jakarta Post Building, 3-4th Floor
Jl. Palmerah Barat 142-143
Jakarta, 10270
Indonesia

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