Regional Dimension of Human Development

Towards Sustainable Human Development

in Decentralized Indonesia
Harry Seldadyo
harry.seldadyo@undp.org
August 15, 2012

Abstract
Indonesias decentralization policy effectively implemented since
2001 can be justified along various dimensions. Among others, regional
diversity may rationalize this policy choice. Not only do the regions
vary with their geo-spatial and insitutional characteristics, but they are
also different in their human development achievement. This paper is
intended to disclose the nexus between geo-spatial and institutional
variables and human development index (HDI) in a decentralized environment. The results indicate that geo-spatial and institutional characteristics matter in determining the quality of human development.
Using provincial-level dataset, this paper exploits spatial variables
to capture location of jurisdictions. This includes longitude, latitude,
altitude, distance to capital city of Jakarta. The paper also explores
the patterns of physical characteristics of region that include the size
of administrative area and natural resource endowment captured via
the share of extractive sectors (forestry, mining, and quarrying) to
Gross Regional Domestic Product (GRDP). Lastly, the paper scrutinizes institutional variables that affect human development. The institutional variables explain the quality of public sectors, ie., government
(provincial governor and local council) as a policy making body and
bureaucracy as a policy executing agent, and the quality of democracy
captured via the behavior of civil liberties and political rights.
The paper finds that longitude and distance to capital city of Jakarta
statistically explain the variation in provincial human development index in a negative fashion. The more we go to the eastern part of the
nation and the farther we go away from the capital city of Jakarta,
the lower HDI is found. Location, therefore, needs to be taken into
account in human development policy formation and execution.
As also found in the size of administrative area, the share of extractive sectors, especially mining and quarrying, adversely affect the

Paper presented at HDCA Conference, 5-7 September 2012

National Research Team Leader of Provincial Governance Strengthening Program
(PGSP), Democractic Governance Unit (DGU), UNDP Jakarta Office

shape of human quality. A resource curse phenomenon is evidently

found in this paper. A series of econometric tests indicate that the
higher share of mining and quarrying in the formation of provincial
GDP fails to be converted into an increase in the quality of provincial
human development.
Using the data nationally collected by Partnership, we find that the
quality of provincial public sectors (government and bureaucracy) in
designing development policies explains provincial achievement in human development. Jurisdictions with a higher quality of public sectors
tend to perform better in human development. This result is robust
when democratic environment is taken into account. On the basis of
Indonesian Democracy Index developed by IDI-Project of Democratic
Governance Unit (DGU) UNDP and Bappenas, this paper finds a significantly positive correlation between this index and HDI. Measured
on the basis of a combination of newspaper content analyses, focusedgroup discussions, and in-depth interviews to result in a democracy
index, we find that regions with high levels of democracy index consistently show high levels of human development index. This finding
is statistically significant. When this index is instrumented to the indexes of government quality and bureaucracy quality, we find democracy matters in explaining the variation in HDI.
The paper also discovers that decentralization followed by a proper
targeted conditional transfer results in a positive fiscal effect on HDI.
A higher share of special allocation grant (DAK) relative to GRDP
has proven to effectively lifts up provincial HDI. This finding is statistically significant. Finally, in decentralized Indonesia where local
governments are in the frontier, sustainable human development can
be achieved when the democratic public sector is improved, and when
human development policies take geo-spatial characteristics into account.

Introduction

This paper approaches human development with regional dimension, analyzed from a combined perspective of physical and insitutional characteristics of provincial jurisdictions in Indonesia. The former refers to the spatial
and geographical attributes of the provinces, while the latter relates to the
quality of provincial-level institutions. The spatial characteristics is defined
as the location of provinces typified by the latitude, longitude, and altitude
positions as well as proximity to the capital city of Jakarta, while the geographical characteristics is marked by the geographical size of jurisdiction
and geographical resources naturally endowed by the jurisdictions. In the
mean time, the quality of institutions links to the attributes of governance
captured via the profoundness of democracy and the ability of public sector
to design and implement local policies.
Taking Indonesia as a case, it is expected that this approach contributes
to our better understanding of the complex area of human development in
the country. The basic rationales are fourfold. First, Indonesia as widely recognized is the nation with socio-economic heterogeneity that comes across
in various geo-spatial landscapes. How this diversity affects development
outcomes, like human development, is a scholarly inquiry that has strong
policy implications on regional development.
Second, Indonesia is dynamically in the process of developing its institutions within the given geo-spatial setting. After the political turmoil in
the end of 1990, the country took two institutional leapfrogs: a jump from
autocratic to democratic regime and a spring from centralization to decentralization. This may be qualified as a radical change for the people living
in the small island of Weh at the tip of Aceh to those living in the mountain
of Puncak Jaya at the top of Papua. After about a decade, these two swings
deserve a conscientious evaluation.
Third, depart from the debate between Sachs and Warner (1995, 1997)
and Sachs (2003) on geography hypothesis versus Acemolgu, Johnson, and
Robinson (2001, 2002) as well as Rodrik, Subramanian and Trebbi (2004)
on institutions hypothesis, this current paper argues that both geo-spatial
and institutions are two complementary rather than competing camps. Geospatial and institutions have direct effect on development outcomes, and
each camp has its own theoretical and empirical grounds even in a country case context like Indonesia as discussed later. At the same time, the
literature also indicate that as geography may shape norms, culture, and
social interaction, it contributes to the formation of institutions before it
affects development outcomes. Thus, the link between geography and development outcomes is briged via institutions. See also, Easterly and Levine
(2003).
Four, albeit this phenomenon is widely recognized, surprisingly it is
rarely the subject of direct analysis, especially when it is connected to the

issue of human development. Some previous studies discuss geography from

the perspective of regional economic development (Hill, Resosudarmo, and
Y. Vidyattama, 2008, 2009), or from microeconomic evidence (Kuncoro,
2009). The current paper is an effort to fill the gap.
This paper is structured as follows. After this introduction, the next
section discusses human development examined from geo-spatial and institutional points of view. The discussion is followed by an empirical depiction
of regional human development achievement, and inferred by some econometrical tests. Finally, a concluding remark closes the paper.

The Literature

Social scientists, more specifically economists, spend a good deal of time and
effort to answer what determines the performance of nations, ie., to understand the underlying factors fundamentally affect the level of development.
While many variables possibly explicate the performance of nations, geospace and institutions have recently come to be two variables of substantial
academic and policy interests. Traditionally these variables represent two
competing views on the factors reponsible for the variation in development
performance of nations. Since each has its own sound theoretical and empirical grounds, however, this paper treats geography and institutions as two
complementary stances.

2.1

The Link

The roles of geo-spatial chracteristics in development have been long recognized since Montesquieu era in the 18th. They may appear in the forms of
contemporaneous effect on economic outcomes and the forms of interaction
with historical events. Diamond (1997) in his Guns, Germs, and Steel: The
Fates of Human Societies revitalizes this issue and convincingly explains the
decisive influence of environmental factors on human history. Sachs (2003)
demonstrates that the levels of develoment are strongly correlated with geographical and ecological variables. The 2009 World Development Report of
the World Bank strongly emphasizes the importance of 3Ds density, distance, and division1 in shaping economic geography. The Banks report
is also accompanied by another volume portraying the forces of economic
geography in the East Asia region and how such forces influence growth
trends across a diverse range of countries (World Bank, 2009b). In short,
1

The Report defines the following. Density refers to the geographic compactness of
economic activity and is measured by the level of output produced, or income generated,
per unit of land area. Distance refers to the ease or difficulty of moving goods and
factors of production between two locations, thus it explicates both physical as well as
economic concepts. Division refers mainly to the negative consequences of political borders
separating countries and thus restricting the flow of goods, people, services, and ideas.

various forms of geo-spatial chracteristics favorably explain the countries development achievement: those with favorable chracteristics develop more
compared to those without such attributes.
Howver, the contemporaneous effect of geo-spatial chracteristics may also
provide inauspicious feed-backs. The literature calls this the resource curse
phenomenon where natural endowment negatively brings microeconomic
effects on commodity prices and non-renewable resource prices as well as
macroeconomic effects on exchange rate widely known as the Dutch Disease
(see Ross (1999) and Frankel (2010) for the survey). On social effect, a
book edited by Buckles (1999) documents ubiquitous conflicts over natural
resources in forestry, coastal areas, and landuse in various dimensions, levels,
and intensities.
From its interaction with historical events, geo-spatial characteristics are
argued as the main reason for colonial settlement. Acemoglu, Johnson, and
Robinson (2001) indicate the importance of a disease prone environment
for current income levels via its effect on potential settler mortality during colonization era. In areas where high mortality discouraged Europeans
from settling, colonizers applied extractive institutions which adversely affected subsequent economic development. Meanwhile in areas where the
environment was favorable for Europeans, colonizers developed productive
institutions that had influences on the post independence years. In their
2002 paper, they again indicate that the level of development before colonization led to different incentives to setup productive or extractive institutions, which eventually led to a reversal in income for these ex-colonies.
Sokoloff and Engerman (2000) also note that in the colonies rich in minerals
colonizers established economic institutions that could exploit the abundant
native labor for mining. Similarly, in colonies endowed by natural conditions
profitable to the production of plantation products, the elite also controlled
the political power to develop and sustain their (unequal) institutions.
In the context of Indonesia the archipelagic state featured by a diversity in ecology the influences of geography and space on development have
also been recognized. From their historical perspective, Dick, Houben, Lindblad, and Thee (2002) indicate how natural resource endowments attracted
the Dutch in the 19th century to trade, conquer, and colonize the nation,
and to build supporting rules for those activities. After its indepedence, the
nation continues to rely heavily on the abundance of natural resources at
least up to the Soeharto era. Arndt (1983) indicates that oil significantly
propels the countrys boom-bust economic cycle. Along with the revenue
from oil, Arndt argues that there is evidence that the living standards of
the great majority of people have improved. However, apart from its impact on the rise in the living standards, oil also negatively affects equality
(Hill, 1992). He indicates that inter-regional disparity is considered very
high once the rich-oil provinces are taken into account the income-based
index of inequality is about 0.9, but it drops substantially to 0.18-0.25 when

mining sector is excluded from the calculation.

In terms of space and regional clustering, Hill, Resosudarmo, and Vidyattama (2008, 2009) demonstrate that economic activity is spatially grouped
around some key regional economies, where the exclusion of major resource
sector like mining may change the economic map. Similar stories are also
found in manufacturing industry (Kuncoro, 2009; Sjoberg and Sjoholm,
2001). Likewise, Amiti and Cameron (2004) identify the agglomeration
benefits of the spatial variation in firm-level nominal wages. Firms benefit
greatly from their proximity to a large supply of inputs and from their access
to good markets: those with the best supply or market access can afford to
pay wages that are more than 20 percent higher than those paid by firms
with the poorest access. They also find that benefits of vertical linkages are
highly localized. Firms do benefit from vertical linkages but not if they are
located in the periphery.
On the contrary, Indonesias geo-space needs also to be seen from the
opposite perspective. First, natural disaster. The country is a place of potential and even actual volcanic and tectonic earthquakes as the eastern
and southern shores of the archipelago are surrounded by a ring of fire. The
biggest case was the 2004 Aceh megadisaster and tsunami. The prelimnary
assessment of Bappenas and the Consultative Group on Indonesia (2005) on
the earthquake finds an amount of $4.45 billion damages and losses, where
66 percent of it constitutes damages and the other 34 percent is losses in
terms of income flows lost to the economy.
Second, resource curse. Resosudarmo (2005) shows that, especially after the 1997 reformasi and decentralization, there are increasing disputes
over the right to exploit natural resources, ie., [1] between local communities and the state or large natural resource companies, and [2] among local
communities themselves to gain a higher share of benefit of local natural
resources. The conflicts over natural resources, however, are not new as it
has its roots. MacIntyre (2006) writes that the basic physical and demographic characteristics of the nation explain episodes of sharp conflict and
violence that have periodically erupted in various parts of the country over
its approximately halfcentury history as an independent state (page 118).
Tadjoeddin (2007) also brings a similar analysis. He warns a possibility of
resource curse in the four natural resource-rich provinces Aceh, Papua,
Riau, and East Kalimantan colored by inter-communal violent conflicts.
Especially for Aceh, Jayasuriya and McCawley (2010) also indicate a similar
story about resource curse and Dutch disease phenomena. However, studies
of Bevan et al. (1999) and Rosser (2006, 2007) conclude that Indonesia
succesfully manages to overcome the natural resource curse and remarkably
grows as well as benefit from geographical proximity and economic opportunities to interact with the rest of the world the policy not taken by most
other resource abundant countries.
Physical characteristics of region certainly matter, but as argued pre-

viously they do not matter exclusively. Apart from geography, there is

also increasing evidence that institutions affect development. Seldadyo et
al. (2007) using cross-country data report that the quality of institutions
robustly relates to economic growth. Rodrik et al. (2004) even find that
the quality of institutions trumps some other variables like geography and
trade in explicating the variation in development outcomes, while they also
recognize that there are indirect effects of geography and trade, ie., by influencing the quality of institutions, on development outcomes. To be more
specific Rodrik (2007) indicates that, among others, regulatory institutions
and institutions of conflict management are the types of institutions that
matter for development. This is also echoed by Tridico (2011) who argues
that the reasons for different levels of performance of nations are first of all
attributable to institutions which include, among others, the different institutional policies and strategies implemented, the mistakes of policy makers,
regulation, policies and incentives for human capital and innovation, democratic political institutions, control of corruption, participation and accountability of people and different initial conditions. Similarly, a series of the
World Banks studies by Kaufmann et al since the mid 1990s idenfities that
six dimensions of governance institutions voice and accountability, political stability and absence of violence, government effectiveness, regulatory
quality, rule of law, and control of corruption matter for development.
However, the average phenomenon of institutions-development nexus
needs to be seen with caution as country studies indicate the opposite results. China is a good example. Alebit its quality of governance institutions
are below the world average, this country performs above-average rates of
growth (Qian, 2003). Similarly, the Philippines and Vietnam have more or
less the same quality of governance, but Vietnam is booming out of a poverty
trap, while the economy of the Philippines stagnates (Pritchett, 2003). In
terms of development outcomes, Quibria (2006) even reports that economies
in Asia with better quality of governance institutions fare worse than the
ones with poor governance. Indonesia may be categorized in this class. The
country suffers from the relatively bad quality of public institutions proxied
by various measures. Using the Transparency International corruption index or the World Banks governance and doing business indexes, Indonesia
is still grouped as a below the world average nation. The countrys growth
performance, however, is widely recognized as one of growing areas in the
world.

2.2

Human Development

Rooted in Sens capability approach (1990) as a firm basis for evaluating

living standards and the quality of life, human development has attracted
attention from the governments over the globe, especially the developing
ones. Various policies have been created to enlarge people capabilities and

to enable them to participate actively in their own development. However, it

is also recognized that human development cannot also be isolated from its
physical and non-physical environment where human development is spaced
around. The Council of Europe, for example, admits the importance of such
an environment to human development, thus spatial planning undoubtedly
plays an important role.
Man and his well-being as well as his interaction with the environment are the central concern of regional/spatial planning, its
aims being to provide each individual with an environment and
quality of life conducive to the development of his personality in
surroundings planned on a human scale.2
Such a view has some empirical supports. Birdsall and Birdall (2005), for
example, signify that geography or location matters. They argue that cultural including economic and political variables within a region may be
more significant with regard to advancing human development than technological ones. In a similar vein, Human Development Report 2011 highlights
the roles of physical geography in human development in four areas of issue,
namely [1] intra-generational equity versus inter-generational equity (sustainability), [2] trade-offs (ie., energy generation) situation that need a focus
on win-win solution, [3] climatic threats, exacerbated by unsustainable development that have disproportionate effect on poor and will worsen inequalities, and [4] access to energy for pro-poor growth and poverty reduction,
where possible with clean and sustainable non-fossil sources. Meanwhile,
Neumayer (2001) simulates that once the depreciation of natural capital
mostly non-renewable resources is taken into account, human development
in some countries move down to a category called potentially unsustainable.
The Human Development Report 2011 (UNDP, 2011) has also taken into
account the effects of environmental shocks on human development. Climate
change is conjectured to affect not only temperature but also rainfall, sea
level and natural disasters. Whats worrying is that the past half centurys
has witnessed dramatic changes in temperature in the polar regions and at
higher latitudes. Although it does not directly harm human development, in
climate-sensitive countries a marginal rise in temperature can disrupt natural conditions with adverse repercussions for water availability and crop
productivity thus, in turn, human capability to survive. Also, since the
beginning of 19th it is recorded that the average sea level has risen with
accelerated rate of change, potentially impacting those living in island countries. The report also writes that there is a growing incidence of recorded
2
http://www.coe.int/t/dg4/cultureheritage/heritage/cemat/concept en.asp.
In its 2008 conference, the Council of Europe Conference of Ministers responsible for Spatial/Regional Planning (CEMAT) highlight a special topic, titled The
Spatial Dimension of Human Rights: for a New Culture of the Territory. See
http://dare.uva.nl/document/216649.

natural disaster that may affect more people and will be more costly in
low and medium HDI countries than in high and very high HDI countries.
As physical geography is an important determinant in the development
of human culture, the variation in the countries human development is also
explained by institutional factors. A current study of Malik and Janjua
(2010) empirically investigates the link between human development in one
side and geography as well as institutions in the other side. They find that
malaria ecology explains the differences in the quality of human development
across countries in the presence of variables that directly and indirectly measure the quality of institutions. They indicate that malaria ecology has a
direct negative impact on human development and this effect appears to be
over and above its effect via institution. Mayer-Foulkes (2010) econometrically calculates the significance of both economic geography and institutions
to shape economic and human development albeit the former is more influencial than the latter. On the role of institutions, Tridico (2011) finds
that the effect of education public expenditure on human development is
much more accentuated when it interacts with the quality of public institutions voice of accountability of the World Banks governance index to
capture public participation. Meanwhile, political freedom proxied by the
index of Freedom House solely has a direct effect on the improvement in
human development index.
Similar to the one found by Birdsall and Birdall (2005) in the crosscountry setting, in the context of Indonesia Seldadyo (2009) finds that
district-level human development is also spatially clustered and correlated
according to their levels human development index (HDI), ie., districts with
a relatively high HDI level are located closely with those with a similar HDI
level, vice versa. Moreover, districts with relatively spacious in size and
characterized by island geography HDI tend to have lower levels of HDI.

The Empirics

The availability of panel data on HDI makes us possible to evaluate the

progress of human development during the decentralization period. Table
1 depicts the evolution of human development over the last decade acrossprovinces. First, when laws 22/1999 and 25/1999 were first introduced
effectively implemented in 1 January 2001 Indonesia began its decentralization with, on average, 65 point of human development index.3 At the
3

This figure, however, is not comparable to what occured in, say Southeast countries. The overall figures in Table 1 are different from the ones produced by International
Human Development Indicators (UNHDI) (http://hdr.undp.org), accessed on 27 June
2012. Three factors explain this difference, namely (1) type and (2) number of underlying
variables of HDI, and (3) sources of data. BPS Indonesia uses life expectancy, schooling
years and literacy rate, and ependiture per capita, drawn from micro (household)-level
socio-economic survey, called Susenas (Survey Sosial-Ekonomi Nasional ). International

onset of the second introduction of laws decentralization (Laws 32/2004 and

33/2004), the country performed a progress where the HDI was 68 point.
Now, after a decade of decentralization, the index approximately touches
the level of 72 thus, there is a seven-point jump over the 10 years from
65 to 72. Nevertheless, the speed of change between the two regimes of
decentralization law is sharply different. The annual speed of change in the
first regime (1999-2004) was one percent, while in the second (2005-2010)
is only half of it: 0.62 percent. In other words, albeit an increasing trend
of HDI occurs during decentralization, the nations capability to increase
human quality attenuates systmatically.
Second, the Table also diplays a regional pattern of human development. The regional ranks tend to be consistent over time where Java is
always on the top, followed by Sumatera, Kalimantan, Sulawesi, and, finally, Maluku-Papua. Various factors may explain this patterm, but geospace and institutions may contribute to this regional variation. This paper
uses longitude, latitude, altitude, and distance from Jakarta to disentangle the roles of space (ie., location) in shaping human development. The
paper also exploits geographical size and the share of extractive sectors
(forestry, mining and quarrying) to capture the contribution of geography
to provincial human development. Finally, to capture institutional variables the paper investigates some indexes on the quality of government, bureaucracy, and democracy drawn from Partnership Governance Index and
UNDP-Bappenas.

3.1

Spatial and Geographical Pattern

In some particular types of space and human development nexus, the Indonesian human development landscape exhibits a relatively systematic pattern
of regional progress. In some others, the nexus is apparent but the existence
of outliers tarnishes its visibility. Figure 1 displays the nexus between HDI
level and spatial location of province captured via four measures, namely
longitude, latitude, altitude, and distance4 to the most economicaly active
jurisdiction, Jakarta the capital city where most socio-economic policy
decisions are located.
The upper-left panel (longitude) indicates that the more we go to the
eastern part of the nation, the lower HDI level can be found. This pattern
resembles the lower-right panel where jurisdictions spatially located far from
the capital city of Jakarta systematically perform poor HDI levels. The
upper-right and lower-left panels actually also inform us some indication of
Human Development Indicators (UN-HDI) data, however, put Indonesia far below the
Southeast Asian nation but Viet Nam. Singapore, Brunei, Malaysia, even the Philippine,
were much in higher ranks of the world human development league.
4
The distance is measured directly as a straight line of Google Maps between Jakarta
and the capital city of each province.

other types of nexus between location (altitude and altitude)) and HDI. Yet,
along with the quite scattered pattern, the presence of outliers makes the
slopes flatter, thus these two types of nexus are rather weak.
The exogenous influences of spatial location may successively link to
geographical and non-geographical factors before it affects human development. While other explanations are possible, at the very first it might relate
to the low productivity of land with a series of given conditions, namely
limited arable land, semi-arid climate, and low quality of land for cultivation activities. Undang (2003) notes that some part of Indonesia has a lower
amount of rainfall, between 700-1300 mm per year, with a long dry period
and be hardened by water shortage and poor soil physical properties. As a
result, annual food crops are planted only one time a year. Therefore, we
can conjecture that, along with this low productivity, not much agricultural
surplus can be gained, accumulated, and exchanged. It is further followed
by the slow progress in the development of non-farm and off-farm sectors
creating a casual link with economic unattractiveness and the slow speed of
urbanization and industrial transformation. This might partly explain the
weak performance of those located in the eastern (longitude) sections of the
country.
Another explanation might come from the view of medical geography of
tropical diseases. Malaria, for example, might be responsible for this fact
as it is widely recognized that malaria has a negative effect on the outcome
of pregnancy, thus perinatal mortality (van Geertruyden et al., 2004). Two
studies by Elyazar et al (2012a and 2012b) on the basis of Bayesian modelbased geostatistics (Bayesian-MBG) indicate that the distributions of both
Plasmodium falciparum and Plasmodium vivax tend to be high in the eastern
rather western part of Indonesia. This is in line with Sudiarno et al. (2010)
who argue that the combination of humid air with disease-carrying agents,
tropical climate, and poor physical and socio-economic environment might
become the fertile land and oasis of tropical diseases.5
Apart from longitude, the distance to the capital city of Jakarta also
explains the quality of human development. Distance might represent the
proximity to the center of policy making and development spillover. The
proximity to the center of policy making implies the closeness of provinces to
economic dynamics resulting in high intensities of interaction and of capitallabor mobility as well as low transportation costs in various sectors. At the
same time, it might also relate to the externalities spread-out from the
center of growth, thus the farther provinces located from Jakarta, the lower
the quality of human development.
5

Albeit intercountry differences might be considered, a parallel story is also

found in Africa where malaria has become a serious disease as it slows down economic growth and development, and perpetuates the vicious cycle of poverty. See
http://www.unicef.org/health/index malaria.html

Province
Sumatera: Average
Aceh
North Sumatera
West Sumatera
Riau
Riau Islands
Jambi
South Sumatera
Babel
Bengkulu
Lampung
Java: Average
Jakarta
West Java
Banten
Central Java
Yogyakarta
East Java
Lesser Sunda: Average
Bali
West Nusa Tenggara
East Nusa Tenggara
BALI
NTB
NTT

DKI
JABAR
BANTEN
JATENG
DIY
JATIM

ACEH
SUMUT
SUMBAR
RIAU
KEPRI
JAMBI
SUMSEL
BABEL
BKULU
LPUNG

Code

67.10
66.00
65.40
66.20
65.80
68.20
75.60
65.80
66.60
66.30
70.80
64.10
61.87
67.50
57.80
60.30

65.40
63.90

64.60
68.70
61.80
60.10
65.70
54.20
60.40

64.80
63.00
66.44
72.50
64.60

2002
66.88
66.00
68.80
67.50
69.10

1999
65.26
65.30
66.60
65.80
67.30

2004
70.12
68.70
71.40
70.50
72.20
70.80
70.10
69.60
69.60
69.90
68.40
70.23
75.80
69.10
67.90
68.90
72.90
66.80
64.13
69.10
60.60
62.70

2005
70.99
69.05
72.03
71.19
73.63
72.23
70.95
70.23
70.68
71.09
68.85
71.08
76.07
69.93
68.80
69.78
73.50
68.42
65.26
69.78
62.42
63.59

2006
71.43
69.41
72.46
71.65
73.81
72.79
71.29
71.09
71.18
71.28
69.38
71.48
76.33
70.32
69.11
70.25
73.70
69.18
65.98
70.07
63.04
64.83

Table 1: Indonesias HDI 1999-2010

2007
71.95
70.35
72.78
72.23
74.63
73.68
71.46
71.40
71.62
71.57
69.78
71.91
76.59
70.71
69.29
70.92
74.15
69.78
66.53
70.53
63.71
65.36

2008
72.50
70.76
73.29
72.96
75.09
74.18
71.99
72.05
72.19
72.14
70.30
72.45
77.03
71.12
69.70
71.60
74.88
70.38
67.08
70.98
64.12
66.15

2009
72.98
71.31
73.80
73.44
75.60
74.54
72.45
72.61
72.55
72.55
70.93
72.91
77.36
71.64
70.06
72.10
75.23
71.06
67.59
71.52
64.66
66.60

2010
73.37
71.70
74.19
73.78
76.07
75.07
72.74
72.95
72.86
72.92
71.42
73.38
77.60
72.29
70.48
72.49
75.77
71.62
68.25
72.28
65.20
67.26

MLUKU
MALUT
PAPUA
PAPBAR

SULUT
GTO
SULTENG
SULSEL
SULBAR
SULTRA

KALBAR
KALTENG
KALSEL
KALTIM

Code

64.10
64.13
66.50
65.80
60.10
66.15

62.90
63.00
67.20
58.80
64.40

62.80
63.60

2002
66.58
62.90
69.10
64.30
70.00
65.84
71.30
64.10
64.40
65.30

1999
64.33
60.60
66.70
62.20
67.80
64.10
67.10

2004
69.00
65.40
71.70
66.70
72.20
67.50
73.40
65.40
67.30
67.80
64.40
66.70
65.00
69.00
66.40
60.90
63.70
68.36

2005
69.95
66.20
73.22
67.44
72.94
68.57
74.21
67.46
68.47
68.06
65.72
67.52
65.78
69.24
66.95
62.08
64.83
69.29

2006
70.37
67.08
73.40
67.75
73.26
69.15
74.37
68.01
68.85
68.81
67.06
67.80
66.51
69.69
67.51
62.75
66.08
69.81

2007
70.70
67.53
73.49
68.01
73.77
69.75
74.68
68.83
69.34
69.62
67.72
68.32
67.12
69.96
67.82
63.41
67.28
70.31

Source: Badan Pusat Statistik, downloaded on 27 June 2012.

http://www.bps.go.id/tab sub/view.php?kat=1&tabel=1&daftar=1&id subyek=26&notab=2

Province
Kalimantan: Average
West Kalimantan
Central Kalimantan
South Kalimantan
East Kalimantan
Sulawesi: Average
North Sulawesi
Gorontalo
Central Sulawesi
South Sulawesi
West Sulawesi
South EastSulawesi
Melanisia: Average
Maluku
North Maluku
Papua
West Papua
Indonesia: Average

2008
71.32
68.17
73.88
68.72
74.52
70.39
75.16
69.29
70.09
70.22
68.55
69.00
67.63
70.38
68.18
64.00
67.95
70.88

2009
71.89
68.79
74.36
69.30
75.11
70.97
75.68
69.79
70.70
70.94
69.18
69.52
68.18
70.96
68.63
64.53
68.58
71.40

2010
72.32
69.15
74.64
69.92
75.56
71.46
76.09
70.28
71.14
71.62
69.64
70.00
68.64
71.42
69.03
64.94
69.15
71.86

This attenuation of human development dynamics, even general development dynamics, against the distance to the center of growth is basically
a tenet dictated by the first law of geography that everything is related to
everything else but near things are more related than distant things. As
a consequence, growth poles of Indonesian human development are those
spatially closed each other (Seldadyo, 2009). This sends a clear policy message on the importance of a creatioan of new growth poles, not only to
dynamize local development but also to generate development convergence
for the lag-behind regions.
Furthermore, albeit not very strong patterns are shown by latitude and
altitude, their types of nexus with human development deserves an explanation. The latitude might be difficult to explain, but the data shows
that those located in the southern part of the country are West and East
Nusa Tenggara and some parts of Papua provinces perform weak in Indonesian human development league. Meanwhile, the opposite achievement
performed by those in the north. However, Bali and Jogjakarta are relatively located in similar latitude points in the south, the same dataset also
shows that these provinces are relatively good performer. North Maluku
and Gorontalo are two provinces located in the latitude similar to North
Sulawesi, yet the performance of these provinces are different. Compared
to North Sulawesi, Jakarta is in the south latitude, but it outperforms all
other regions.
On the altitude, the nexus might be bridged via economic development.
Altitude might first reflect the low productivity of upland farming system.
Characterized by shallow soils with acidic infertile ultisols, oxisols, and inceptisols, in highly altitude areas land is only suitable for natural preservation, conservation forest, hydrology, and especially for areas with less
steep slope estate crops (Undang, 2003). At the same time, hilly topography often found in highly altitude regions are cultivated also by dryland
agricultural practices without soil conservation measures or environmental
protection. In hilly areas rugged terrain is also often found. It is widely
known that with a limited technology use, rugged terrain is tough to farm,
costly to traverse, and often inhospitable to live in (Nunn and Puga, 2012).
Again, with this low productivity, only limited agricultural surplus can be
gained, accumulated, and exchanged.
Moreover, the altitude and human development nexus can be mediated
also from the angles of remoteness and isolation. Combined with rugged terrain charateristics, highly altitude may appear as remote and isolated areas.
In such areas, public infrastructure is hard to be developed as it is commonly
found in West Sulawesi, North Maluku, Papua, and West Papua. In other
words, the inavailability of and the inaccessibility to social and economic infrastructure due to the remoteness and isolation of highly altitude
topography are responsible for the weak human development performance.
Yet, health-related variables might not be ignored in scrutinizing the link

Figure 1: Provincial HDI and Location

between altitude and, say, micronutrient deficiency or general health and nutritional status. In the case of Bhutan, WHO indicates that iodine deficiency
as a major problem in high-altitude areas.6 Field et al (2007) argues that
dietary iodine is a key determinant of cognitive capacity in humans, thus its
deficiency could have important consequences for human capital accumulation and labor productivity in afflicted areas. WHO (2007) notes that iodine
deficiency contributes to brain damage and mental deficiency that have an
immediate effect on child learning capacity, womens health, the quality of life
in communities, and economic productivity. Indeed, in an iodine-deficient
population, everybody may seem to be slow and rather sleepy. The quality
of life is poor, ambition is blunted, and the community becomes trapped in
a self-perpetuating cycle.
Figure 2 demonstrates physical attributes of jurisdiction that relate to
the quality of human development. This includes two exogenous variables
namely geographical size of jurisdiction and the share of extractive sectors
to GRDP (forestry, mining, and quarrying) that might be considered as natural endowment. The first caption of Figure 2 indicates that jurisdictions
with larger geographical size tend to have lower levels of HDI. This can
be explained via the perspective of geo-administrative span of control, ie.,
the area that must be covered and served by local government through the
provision of public goods and services. Higher span of control creates more
difficulties in serving the public.7 This is true when the geographical size is
transformed into two types of density, namely population and GRDP densities. The former relates to the scale effect of the provision of public goods
and services, while the latter captures the intensity of economic activities
per area size metric. The higher the densities, given the geographical size,
the higher the HDI level can be found.
The second caption in Figure 2 displays a negative linkage between HDI
level and the share of extractive sectors (forestry, mining, and quarrying).
But, the forestry and human development linkage is scattered with some outliers and a flat slope. Meanwhile, when the mining and quarrying are taken
into account a clear depiction appears. With two exceptions of Riau and
East Kalimantan, the Figure exposes that endowment-rich jurisdictions perform bad in human development league. They fail to convert these natural
resources into the priovision of public goods that serve human development.
This resource curse phenomenon might also show that the extractive activities are enclaved in a way that creates barriers for local communities to
participate. As a result, not much trickling-down effects can be generated
from these activities.
6

searo.who.int/LinkFiles/WHO Country Cooperation Strategy-Bhutan 2013Health

andDevelopment.pdf
7
Our dataset also informs that provinces with wider geographical size tend to have
more number of lower-level jurisdictions, namely districts, subdistricts, and villages.

Figure 2: Provincial HDI and Geography

3.2

Pattern of Institutions

Now we turn to examine the relationship between human development and

institutions at the provincial level. We use three measures of institutions,
namely government quality, bureaucracy quality, and democracy. The first
index is drawn from Partnerhip Governance Index (PGI)8 , that defines government as the policy making bodies. This refers to both the provincial governor and legislative. Ranging from 0-10 where higher score means better
quality of government, the index captures the way government performs its
functions in the areas of regulation, development coordination, and budget
allocation. From the same sources, the second index measures three areas of bureacracy, namely public service provision, local revenue generation,
and local economy regulation. Bureaucracy is defined as the provincial-level
implementing body that bridges the policy makers and the general public.
The quality of bureaucracy in running its functions is captured via a scale
ranging from 0 to 10.
The third measure is democracy index drawn from Indonesian Democracy Index (IDI) of Bappenas-UNDP capturing two indicators: civil liberty
and political rights. Aggregated from a set of subindicators within a scale
of 0-100, the former consists of freedom of assembly, freedom of speech,
freedom of worship, freedom from fear, and freedom from discrimination,
while the latter includes free and fair elections, role of the parliament, role
of political parties, role of local government, and independency judiciary.
In sum, the three indexes are used to comprehend the quality of provincial
development agents in the policy making, policy implementation, and policy
accountability processes.
The last measure is an aggregated index factor-analyzed from the three
indexes. With the highest eigen-value of 1.295 resulting a single factor, the
factor loadings for the three measures are 0.764, 0.761, and 0.365 respectively
for government, bureaucracy, and democracy indexes. A similar pattern (not
presented here) is also found if the democracy index is split into two, namely
civil liberties index and political rights index, before it is factor-analyzed
jointly with the other two. The eigen-value is 1.517, while the loadings
are 0.752, 0.776, and 0.512, respectively for government, bureaucracy, and
political rights indexes with an execption from civil liberties index where
its factor loading is -0.296.
All captions in Figure 3 illustrate the positive relationship between human development and institutions. First, as the quality of policy making
process increases, human development quality boosts up. Second, along with
the improvement in the quality of policy implementation process, the quality
of human development improves. Third, in line with the elevation of quality
of policy accountability process, the quality of human development also lifts
up. Lastly, the summarized institutional index exhibits a similar pattern:
8

http://www.kemitraan.or.id/govindex/.

Figure 3: Provincial HDI and Institutions

higher quality of institutions produces higher HDI level. In other words,

a jurisdiction with good government and bureaucracy within a democratic
environment is able to produce a good quality of human development. This
conclusion, however, requires futher statistical checks, as the existence of
three outliers (NTB, NTT, Papua) may affect the robustness of the pattern.

Econometric Features
The various types of human development nexus need further examinations
whether the figural presentations above are supported by statistical evidence. Table 2 tests the relationships between HDI and space. The mathematical signs of the four spatial variables are consistent with the previous
figural presentations. However, as also qualitatively discussed above, out of
the four measures of space, longitude and distance to Jakarta tend to be
robust in explaining their linkages with human development. The rest is
statisticaly insignificant. First, the t-values of longitude and distance are
consistently high whether Gross Regional Domestic Product (GRDP) per
capita are controlled for or not. Second, the standardized-s indicating
the comparable effects of these variables outperform all other spatial variables. This is, to some extent, due to the similarity between longitude and
distance to Jakarta as this capital city is located in the west longitude point
both polychoric and Pearsons correlations indicate the same figure: 0.788.
Third, in the specifications where longitude and distance are examined, the
changes in R2 s after the inclusion of income are, albeit substantive, not as
spectacular as the ones where the other two variables are analyzed. This
indicates that longitude and distance are much more able to explain a quite
large variation in HDI compared to latitude and altitude. As described earlier, qualitatively, those mentioned facts can be explained from the angles of
the evolution of economic development that ends up in human development,
medical geography, proximity to center of decision making, and spill-over effects.
Table 3 examines the correlations between HDI and geography. Geographical size of jurisdiction significantly explains the achievement in HDI
level. The effect is the same whether the model controls for GRDP per
capita or not. Forestry solely, as conjectured previously, has no effect on
the formation of HDI. Meanwhile, mining and quarrying are statistically responsible for explaining the resource-curse phenomenon. A combination of
forestry in one side and mining-quarrying in the other side does not change
the sign, size, and significance of the effect of mining-quarrying on human
development. In other words, albeit the ability to explain the variation
in regional HDI is low, mining-quarrying is the most important sector in
extractive activities.
Table 4 displays the link between human development and institutions.
Solely government, bureaucracy, and democracy have significant effects on

HDI formation where between 10-20 percent variation in HDI can be explained by each variable. The inclusion of income doubles the power of
each model in explaining the variation in HDI. Also, once income per capita
is controlled for, the size and significance level reduce roughly by about
40 percent. However, still, the overall institutions are found positive and
significant in affecting human development at least 10 percent level. This
reaccentuates the qualitative explanation above on the nexus between institutions and HDI, thus supports the institutions hypothesis.
How do these variables jointly affect the variation in HDI level? Which
spatial, geographical, and institutional variables explain the differences in
regional HDI? Due to their performances in the R2 , standardized-, t-values,
the previous examinations (Tables 2-4) suggest longitude representing spatial variable, the share of mining-quarrying sector capturing geographical
endowment, and democracy characterizing institutional variables and (natural logarithm) income per capita as the variables determining the variation
in provincial HDI levels. Table 5 presents that these determinants are found
statistically significant. Moreover, as democracy is taken into account into
the model, three situations happen. First, the overall model improves as
the R2 rises by 10 percent. The model now has more power to explain the
variation in provincial HDI levels. Second, the standardized effect GDP per
capita reduces by 13 percent from 0.67 to 0.58, or by 15 percent for the
unstandardized effect, while the significance level also lifts up consistently.
In other words, the improvement in provincial HDI performance now needs
to consider non-economic factor(s) as the role of economic factor, albeit still
significant, reduces. Third, the adverse effect of natural resources, again
although still statistically significant, attenuates by 12 percent. This sends
another policy message that the resource curse phenomenon can be governed
via democratization. Fourth, no substantial change occurs to longitude indicating that the persistent effect of geography, thus demands for special
policy treatments.
By construction, endogeneity problem that potentially occurs to the
nexus of human development and democratic institutions have been minimized. The latter is constructed by one-year time lag (2008-2009), while
the former explains the 2010 provincial HDI situation. Therefore, it is vendicated to argue that causality is no longer an issue in this construction.
Still, however, to accmodate the concern on this issue, the paper tries to
apply to instrument the democracy index using longitude as an exogenous
spatial variable. Nevertheless, it is found that longitude is not a good instrument for democracy as the adjusted R2 is -0.02, neither the share of
mining-quarrying sector (the adjusted R2 is -0.03), nor distance to Jakarta
(the adjusted R2 is 0.02). Referring also to the previous results, it is save
to say that some geographical or institutional variables may solely explain
human development, but their explanatory power increases when these variabels are jointly integrated in the model.

Longitude
Std.

(t-value)
1.76
(2.81)
-0.16
-0.55
-0.12
(4.03)
(-2.37)
89.59
56.71
(20.74)
(3.93)
0.30
0.45
33
33
Altitude (000)
2.41
(5.26)
-1.26
-0.29
-1.43
(-1.59)
(-1.56)
72.45
32.44
(118.29)
(4.14)
0.07
0.31
33
33

(t-value)

Std.

0.40

-0.33

0.54

-0.44

The t-values are calculated on the basis of robust standard errors.

R2
N

Constant

Space

GRDP per Capita (Ln)

R2
N

Constant

Space

GRDP per Capita (Ln)

Independent
Variables

Latitude
Std.

(t-value)
2.15
(3.45)
0.23
0.27
0.15
(1.48)
(1.22)
72.52
36.47
(126.38)
(3.53)
0.07
0.30
33
33
Distance (000)
1.96
(3.40)
-1.61
-0.48
-1.32
(-3.25)
(-1.95)
73.79
40.85
(99.20)
(4.05)
0.23
0.42
33
33

(t-value)

Dependent Variable: HDI

Table 2: HDI and Space

-0.39

0.44

0.18

Std.

0.49

The t-values are calculated on the basis of robust standard errors.

R2
N

Constant

Geography

GRDP per Capita (Ln)

R2
N

Constant

Geography

GRDP per Capita (Ln)

Independent
Variables

Dependent Variable: HDI

Area Size (Ln)
Share of Mining-Quarrying

Std.

Std.

Std.

Std.
(t-value)

(t-value)

(t-value)

(t-value)

2.31
0.52
3.51
0.79
(4.21)
(6.24)
-0.81
-0.34
-0.82
-0.34
-0.04
-0.22
-0.12
-0.59
(-1.75)
(-1.99)
(-0.80)
(-3.66)
80.30
41.88
72.31
14.53
(16.98)
(3.52)
(123.03)
(1.57)
0.11
0.45
0.05
0.54
33
33
33
33
Share of Forestry
Share of Extractive Sector
2.37
0.54
3.52
0.80
(4.11)
(6.19)
0.00
0.00
-0.18
-0.10
-0.04
-0.22
-0.11
-0.59
(-0.01)
(-0.67)
(-0.77)
(3.47)
71.86
32.53
72.34
14.52
(95.86)
(3.39)
(116.35)
(1.55)
0.00
0.28
0.05
0.54
33
33
33
33

Table 3: HDI and Geography

Dependent Variable: HDI

Government Quality
Bureaucracy Quality

Std.

Std.

Std.

(t-value)

(t-value)

(t-value)

(t-value)
2.07
0.47
2.05
(3.15)
(3.13)
1.07
0.31
0.55
0.16
1.28
0.36
0.92
(2.08)
(1.12)
(2.20)
(1.55)
66.58
34.54
64.70
32.58
(25.27)
(3.60)
(19.72)
(3.61)
0.10
0.29
0.13
0.34
33
33
33
33
Democracy
Institutions
1.94
0.44
1.92
(3.10)
(2.84)
0.28
0.44
0.21
0.34
1.45
0.41
0.97
(2.34)
(1.81)
(2.62)
(1.67)
53.12
25.21
71.86
39.79
(6.54)
(3.22)
(149.67)
(3.54)
0.19
0.38
0.17
0.34
33
33
33
33

The t-values are calculated on the basis of robust standard errors.

R2
N

Constant

Institutions

GRDP per Capita (Ln)

R2
N

Constant

Institutions

GRDP per Capita (Ln)

Independent
Variables

Table 4: HDI and Institutions

0.27

0.44

0.26

Std.

0.46

Furthermore, the paper also applies another experiment to incorporate

democracy index into the indexes of government quality and bureaucracy
quality via an instrumental variable technique. The idea is to exploit the
fitted-values of government and bureaucracy indexes that contain democracy
index.9 The results are presented in Table 6. In the top panel government
and bureaucracy indexes are directly used as the independent variables of
HDI. Meanwhile, in the bottom panel government and bureaucracy indexes
are not directly treated as the independent variables, but their fitted-values
due to democracy index.
The findings are interesting. When democracy is taken into account,
government and bureaucracy indexes are not only statistically significant
with much higher t-values, the (standardized and unstandardized) effects
also substantially increase. Even, the algebraic signs of government index in
the standardized and unstandardized s are corrected. More than that,
although the two panels exploit the same number of independent variables,
the R2 s in the second panel considerably improve. Clearly, the quality of
government and bureaucracy per se is not enough to elevate human development. Yet, when democracy is poured out for these two development agents,
the impacts of government and bureaucracy boost up. In other words, for
a sustaiable human development, government and bureaucracy need to be
accountably controlled by democratic environment.
Table 5: HDI, Geo-space, and Democracy
Independent
Variables
GRDP per Capita (Ln)
Longitude
Mining &
Quarrying
Democracy
Constant
R2
N

Dependent Variable: HDI

Std.

Std.
(t-value)

(t-value)

2.95
0.67
2.57
0.58
(4.58)
(4.59)
-0.08
-0.27
-0.08
-0.28
(1.80)
(2.21)
-0.09
-0.48
-0.08
-0.43
(-3.12)
(-3.81)
0.16
0.25
(2.57)
32.36
28.14
(2.37)
(2.50)
0.60
0.66
33
33

The t-values are calculated on the basis of robust standard errors.

9
In this experiment government and bureaucracy indexes are separately regressed on
democracy index to produce their fitted-values. The results are Y = 1.37 + 0.05Z; t-value:
1.88 and X = 2.17 + 0.05Z; t-value:1.53, where Y, X, and Z are respectively government,
bureaucracy, and democracy indexes. The resulting fitted-values are then used in the
models displayed in Table 6.

The t-values are calculated on the basis of robust standard errors.

R2
N

Mining
Quarrying
Government
Quality
Bureaucracy
Quality
Constant

Longitude

GRDP per Capita (Ln)

Independent
Variables

Dependent Variable: HDI

Without Influence of Democracy
With Influence of Democracy
Beta
Std.
Beta
Std.
Beta
Std.
Beta
Std.
(t-value) Beta (t-value) Beta (t-value) Beta (t-value) Beta
2.98
0.68
2.88
0.65
2.57
0.58
2.57
0.58
(3.99)
(4.14)
(4.59)
(4.59)
-0.08
-0.27
-0.07
-0.24
-0.08
-0.28
-0.08
-0.28
(1.91)
(-1.72)
(2.21)
(2.21)
-0.09
-0.48
-0.09
-0.47
-0.08
-0.43
-0.08
-0.43
(-2.94)
(2.90)
(3.81)
(3.81)
-0.08
-0.02
3.00
0.25
(-0.19)
(2.57)
0.27
0.08
3.12
0.25
(0.67)
(2.57)
32.33
31.11
24.02
21.37
(2.31)
(2.29)
( 2.06)
( 1.78)
0.60
0.61
0.66
0.66
33
33
33
33

Table 6: HDI, Geo-space, and Institutions

Now, this paper examines the effect of decentralization the performance

of provincial human development. From fiscal perspective, decentralization is marked by four types of grant, namely general block grant called
Dana Alokasi Umum (DAU; General Allocation Grant) which unconditional grant, conditional block grant called Dana Alokasi Khusus (DAK;
Special Allocation Grant), revenue sharing (Dana Bagi Hasil, DBH), and
grant allocated to jurisdictions due to their special status of autonomy
(Dana Otsus, DO). In the regions, local governments mainly allocate DAU
to finance routine expenses (good, salaries, travel, equipment, and the like).
Two other grants, DBH and DO, are basically an open menu provided for
local government to allocate and spend. Different from the three previous
types of grant, DAK is targeted to finance particular development sectors
prioritized by both national and local government. Now, not less than 19
sectors at local level are financed via this grant.
This paper uses the total DAK, not merely DAKs for health and education sectors, to scrutinize its impact on human development. This is simply
because, apart from health and education, the other component of HDI, ie.,
income, is configured from various sectors including infrastructure, water,
irrigation, agriculture, fishery, rural electricity, and many others. In other
words, it is more appropriate to inspect the overall, rather than particular,
sectors of DAK. Table 7 expands Tables 5 and 6 and adds the ratio of DAK
to GRDP into the models. The table reports that decentralization grant
is an important fiscal transfer to boost human development. Controlled for
income, geo-spatial, and institutional variables, DAK appears to be a highly
significant variable in explaining the variation in provincial HDI levels. Under regional democratic institutions as depicted in the three panels of Table
7 and given the regional geo-spatial characteristics, a one standard deviation increase in the DAK-GRDP ratio lifts up HDI level to about 40 percent
standard deviation. Clearly, fiscal transfer considerably contributes to the
improvement human development.

Democracy Index
Beta
Std.
(t-value)
Beta
4.12
0.89
(4.18)
-0.12
-0.43
(2.50)
-0.10
-0.54
(-3.83)
0.12
0.20
(1.95)
10.55
0.40
(2.23)
8.16
(0.48)
0.66
32

The t-values are calculated on the basis of robust standard errors.

R2
N

Grant-GRDP
Ratio
Constant

Mining
Quarrying and
Institutions

Longitude

GRDP per Capita (Ln)

Independent
Variables

Dependent Variable: HDI

Democratic Government
Beta
Std.
(t-value)
Beta
4.12
0.89
(4.18)
-0.12
-0.43
(2.50)
-0.10
-0.54
(-3.83)
2.28
0.20
(1.95)
10.55
0.40
(2.23)
5.03
(0.30)
0.66
32

Table 7: HDI, Geo-space, and Institutions

Democratic Bureaucracy
Beta
Std.
(t-value)
Beta
4.12
0.89
(4.18)
-0.12
-0.43
(2.50)
-0.10
-0.54
(-3.83)
2.37
0.20
(1.95)
10.55
0.40
(2.23)
3.00
( 0.18)
0.66
32

Endogeneity Issue
Albeit all the models above are constructed in a lagged format where HDI
2010 is regressed on Xs 2008, thus the independent variables preceed the
dependent variabel, one may suspect that endogeneity problem would probably occur between HDI and the quality of institutions (ie., government and
bureaucracy). As a consequence, the nexus between HDI and insitutions is
simply a association rather than the direction of causation which is needed
for policy analysis. A similar issue has also been raised by Sachs (2003) on
the effect of geography and institutions on well-being.
To cope with this issue, we need an exogenous instrument that may explain these insitutions. The paper takes longitude as the instrument for
institutions for several reasons. First, like many other geography variable,
longitude is also considered exogenous as space or location of jurisdication
is not influenced by any human-made variables. Second, longitude to some
extent explains a degree of development, knowing that its correlation coefficient with distance to Jakarta is very high (0.79) and very significant
(< 1%). As mentioned previously, Jakarta is the center of policy decision
and development, thus it explicates that the farther the jurisdiction from
the capital city of Jakarta, the lesser the spillover effect can be exploited.
For this purpose, this paper runs two types of regression and finds the
following:
GQ = 8.047 + 0.027L
(5.07)

(1.96);

(1)
2

R = 0.11

(2)

BQ = 9.229 + 0.032L
(6.05)

(2.38);

R2 = 0.16

where GQ, BQ, and L are respectively government quality, bureaucracy

quality, and longitude. The results in equations 2 and 3 clearly indicate
that the longitude matters, that is the jurisdictions relative geographical
positions to Jakarta explain the quality of insitutions. Those located closer
to Jakarta tend to perform better quality of institution. Thus, the instrument may work well.
The results above, ie., the predicted values of GQ and BQ then are
instrumented in the following HDI equations and result some interesting
findings. Tabel 8 exploits previous regressions with a modification where
the quality of insitutions is now instrumented by longitude. The other independent variables of in both types of model perform similar effects on HDI.
Interestingly, the same behaviour is also indicated by the two variables proxying institutions. Both government and bureaucracy variables, not only has
the same magnitude of effect (0.47) but also the same level of significance.
These findings portray two types of effect of geography on HDI. First, it
direcly affects the jurisdictions capacity to achieve HDI. Second, it indi-

rectly influence HDI; that is, it affects the quality of institutions, then the
quality of institutions impacts on HDI.

Table 8: HDI, Geo-space, and Institutions

Variables
Independent
Variables
GRDP per Capita (Ln)
Mining
Quarrying
Grant-GRDP
Ratio
Government
Quality
Bureaucracy
Quality
Constant
R2
N

Dependent Variable: HDI

Beta
Std.
Beta
Std.
(t-value) Beta (t-value) Beta
Tackling Endogeneity
Beta
Std.
Beta
Std.
(t-value) Beta (t-value) Beta
4.62
1.02
4.62
1.02
(4.85)
(4.85)
-0.12
-0.64
-0.12
-0.64
(3.90)
(3.90)
12.33
0.47
12.33
0.47
(2.35)
(2.35)
4.60
0.47
(3.04)
3.94
0.47
(3.04)
4.40
5.05
(0.35)
(0.41)
0.64
0.64
33
33

Concluding Remarks

In the 1996 Human Development Report UNDP defines human development as expanding the choices for all people in society where the poor and
vulnerable in particular are at the centre of the development process. It
also means protection of the life opportunities of future generations . . . and
. . . the natural systems on which all life depends. Therefore, the creation
of an enabling environment for the poor and the vulnarable to have long,
healthy and creative lives is the key content of any development policy. To
make human development sustainable, UNDP emphasizes five important
aspects, namely empowerment of human capability, cooperation among societies, equity of access to public goods, sustainability over generations, and
security of livelihood.
How such aspects can be transformed into human development policies
is really a serious challenge for Indonesia. This challenge, however, is not

in a vacuum as the country is colored by with diverse geo-spatial and institutional characteristics. This study has indicated that both geo-spatial and
institutional variables jointly explain the variation in human development
achievement across provinces, and the evidence is statistically significant.
From the tip of coasts in Aceh to the top of mountains in Papua, it is evident that the challenge varies sistmatically. Certainly every locus of development has its own human development challenge, but it is neither without
a pattern nor occurs at random.
If human development is centered on the poor and the vulnarable, then
knowing where the poor and vulnarable are and understanding how their
norms, traditions, customs, mores, habits, and rules of the game are shaped
by geo-spatial characteristics or, even, historical routes are a valuable database
for policy makers to outreach them. Geo-space and institutions, therefore,
matter. This knowledge helps sharpen human development policies, thus
improves the efficiency and effectiveness of public sector interventions.
Geo-spatial variables may be exogenously given, while insitutional factors are formed via particular trajectories. But, the five aspects sustainable
human development are very costly to achieve in the absence of such knowledge. How, for example, the poor and vulnarable could be empowered and
their livelihood could be secured undoubtedly require prior apprehension on
the characteristics of the poor and vulnerable as well as their physical and
non-physical environment. At the minimum, geo-spatial variables provide
infromation about physical characterstiics how location affects the texture
and architecture of the anastomotic triangle and how natural endowments
blesses or curses those living with the resources. Meanwhile, institutional
variables mirror the image of non-physical characteristics that reciprocally
shape interactions among people, their surrounding neighbors, and those in
authorities, and interactions between human and their environment.
A human development map with geo-spatial information, for example,
is an extremely useful start up to understand where and who the poor and
vulnarable are. Similarly, an institutional map is also a very informative
data to scrutinize the quality of those in authorities. The higher the degree
of data deaggregation, the accurate the information that can be obtained.
Overlaying these two maps completes the overal picture of human development situation. The further steps remain to the usage of these maps for and
the convertion of them into human development policy strategies, or even
for other poverty and inequality reduction programs.
In the context of Indonesia, resolving regional human development problems strongly relates to alleviating poverty and elevating equality. The two
figures below provide the evidence: higher rates of poverty and inequality
are found in the provinces with lower HDI levels, and the other way around.
On the basis of this fact we may argue that human development, poverty,
and inequality are an anastomotic triangle, ie., once a jurisdiction suffers

from a low HDI level, it also suffers from high poverty and inequality levels.
Therefore, as the triangle is statistically inferred, the underlying variables
explaining the variation in human development levels can arguably be exploited to understand the variations in both poverty and inequality rates.
How decentraization contribute to resolve this triangle? The first strength
of decentralization lies in the closeness of those in authorities to the people
who must be served. The second strength refers to its ability to capture
and incorporate geo-spatial and institutional diversities. Therefore, it is
not surprising if the literature repeatedly broach efficiency and effectiveness
issues into the discourses of decentralization. In other words, the most important decentralization challenge is to transform the devolved and to a
limited degree, deconcentrated functions into intergovernmental relations
oriented to the efficiency and effectiveness of democratic public sector; that
is, efficient in running the government and bureaucracy, and effective in
outreaching the public.
Decentralized regime is challenged to prove that devolved functions,
equalized fiscal transfers, and revenue-raising powers are able to efficiently
and effectively disentangle and resolve the anastomotic triangle of human
development, poverty, and inequality above. Indubitably the efficiency of
public sector and effectivenes of public outreaching crave information about
who, where, and how to be served. Thus, decentralization of data collection
needs to follow the functions and finances that have been devolved. Under a decentralized data system, geo-spatial and institutional factors can
be exploited to understand their unique linkages with human development.
First, geo-spatial and institutional information allow the local public sector
to better-identify particular zones where human development is found weak.
Second, it helps local public sector to integrate local-specific and generalcommon characteristics determining human devevelopment and to design
a set of focused-strategic policy intervention. Third, this also permits regional governments to provide a package of public spending poured to the
well-identified zones.
The decentralized Indonesia now is at the stage where the public sector efficiency and public outreach effectiveness are seriously questioned. It
is true that the triangle problem mentioned above is an inherited burden
bequeathed from the previous regime of centralization. But some lessons
can certainly learned from the past, thus as the time moves and the regime
changes, the ability to understand the triangle and its underlying geo-spatial
and institutional factors needs to be improved. For a sustainable human development to become a reality where empowerment of human capability,
cooperation among societies, equity of access to public goods, sustainability
over generations, and security of livelihood are taken into account, geospatial and institutional characteristics need to be well understand first.
This paper has sent an important signal that particular spatial, geographical, and institutional factors really matter.

Figure 4: HDI, Poverty, and Equity

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