Proceedings of the 9th International Conference on Indonesian Social and Political Enquiries (ICISPE 2024)

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Fiscal Decentralization and Structural Involution in Developing Countries

Authors
Bangkit Aditya Wiryawan1, 2, *
1Universitas Diponegoro, Jakarta, Indonesia
2Nagoya University, Nagoya, Japan
*Corresponding author. Email: bwiryawan@lecturer.undip.ac.id
Corresponding Author
Bangkit Aditya Wiryawan
Available Online 1 July 2025.
DOI
10.2991/978-2-38476-436-5_9How to use a DOI?
Keywords
Decentralization; Federalism; Structural Change; Involution
Abstract

Fiscal decentralization has been labeled as the silent change in the world’s development. The main purpose of this policy is to increase growth and equality in country’s sub-national level as well as promote openness and accountability. This in turn would lead to productive structural transformation when combined with industrial policy. However, my finding suggests that the reversal is true. Using data derived from IMF’s Government Financial Statistics for the period between 1995 and 2017, it is found that fiscal decentralization has led to structural involution where the output share of agriculture increased at the cost of declining share of other sectors, particularly the industry sector. The result is particularly robust for low and lower-middle income country groups as well as under different estimation method. The phenomenon goes in line with premature decentralization narrative. These findings call, among others, for the prior need of a strong institutional capacity at the local level in order to mitigate local elite capture and rent-seeking. With stronger central-local collaboration, vertically-coordinated industrial policy between multi-level of governments could kick in to support productive transformation.

Copyright
© 2025 The Author(s)
Open Access
Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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Volume Title
Proceedings of the 9th International Conference on Indonesian Social and Political Enquiries (ICISPE 2024)
Series
Advances in Social Science, Education and Humanities Research
Publication Date
1 July 2025
ISBN
978-2-38476-436-5
ISSN
2352-5398
DOI
10.2991/978-2-38476-436-5_9How to use a DOI?
Copyright
© 2025 The Author(s)
Open Access
Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

Cite this article

risenwbib
TY  - CONF
AU  - Bangkit Aditya Wiryawan
PY  - 2025
DA  - 2025/07/01
TI  - Fiscal Decentralization and Structural Involution in Developing Countries
BT  - Proceedings of the 9th International Conference on Indonesian Social and Political Enquiries (ICISPE 2024)
PB  - Atlantis Press
SP  - 106
EP  - 119
SN  - 2352-5398
UR  - https://doi.org/10.2991/978-2-38476-436-5_9
DO  - 10.2991/978-2-38476-436-5_9
ID  - Wiryawan2025
ER  -