This paper asks whether creating new local districts—government fragmentation—affects local economic activity, using Indonesia’s large wave of district splits from 2000–2014 as a case. The authors exploit variation in the timing of district splits to estimate effects on district GDP and public spending patterns, and they compare outcomes for newly created (“child”) districts and their parents. The study’s central contribution is empirical evidence that fragmentation can reduce measured local GDP in the short run even when central transfers rise.
local government fragmentation district GDP decline administration-heavy spending
Data and methods
The analysis covers Indonesia during 2000–2014, a period when the number of districts rose by about 50%. The authors exploit “idiosyncratic variation in the timing of district splits” to identify effects of fragmentation; the abstract describes this as the source of variation used to estimate impacts on economic activity. The description implies a quasi-experimental research design comparing districts before and after splits and between split and non-split districts.
Main findings
The authors report that fragmentation reduces district GDP in the short term despite “large increases in central transfers.” The GDP decline is reported to be larger in “child” districts that acquire a new capital and government. The abstract further states that splitting districts shifts spending toward administration without improving public services or reducing red tape and corruption.
- Fragmentation coincided with higher central transfers but lower district GDP in the short run.
- Negative effects were particularly pronounced for newly created (“child”) districts.
- Spending shifted toward administration rather than service improvements, with no reported reductions in red tape or corruption.
